The case centres on a family-run business, Arctic Systems Ltd, which used dividends from the business to remunerate Geoff and Diana Jones, the shareholders. Despite a decisive ruling by the Court of Appeal in favour of the taxpayer, HMRC is continuing its campaign to extract further monies from the Joneses.

The case could result in a clampdown on UK small businesses formed by couples around only one spouse’s work, with companies potentially facing a mammoth tax bill if the Law Lords rule in favour of the Treasury.

Bill Knox, FSB Taxation Chairman, says: ‘HMRC’s conduct towards a family-run business in this case is utterly shameful. They refused to respect the decision of the Court of Appeal, which delivered a decisive and authoritative ruling in favour of the taxpayer.

‘Hounding hardworking small business owners in this way sullies the good name of HMRC and will not instil confidence in the UK small business community as a whole, which rightly expects to be treated proportionately and fairly by the tax authorities.

‘The craven decision to pursue the case further will be at the expense of the taxpayer and will result in a damaging loss of confidence in HMRC’s record with small businesses.’