An estimated 200,000 husband-and-wife businesses could be forced to pay thousands of pounds in tax after a Sussex couple lost a test case against the Inland Revenue.

The issue at stake was whether it was right for Geoff Jones to pay himself and his wife Diana largely through dividends instead of a salary, which consequently lowered their tax bill.

The couple run Arctic Systems, a small computer consultancy in Pulborough. Mr Jones generates most of the income while his wife administers the company.

By paying a dividend out of profits and steering some of Mr Jones' income to his wife, the couple were able to reduce the amount they paid to the taxman.

The special commissioners' judgement was that when couples draw dividends from family firms it should be treated as if the entire income was the main breadwinner's - in this case Mr Jones.

This prevents partners who take on administrative or "backroom" roles making use of their personal tax allowance and enjoying lower rates of income tax.

Mr and Mrs Jones were told in June they would have to pay an extra £42,000 tax on dividends received during the previous six years.

However, shortly after litigation began the Inland Revenue dropped its demand for retrospective tax but went on to attack the principle of the independent taxation of husbands and wives.

Speaking after the judgement, Mr Jones said: "We are very upset about losing this case. I am sure many people just give up when faced with an Inland Revenue demand, however unfair or incorrect it may be."

The Inland Revenue won its case by the narrowest of margins after special commissioner Judith Powell found in favour of Mr and Mrs Jones but the presiding commissioner Nuala Brice exercised her casting vote for the taxman.

The Jones' legal costs were funded by the Professional Contractors Group, which represents the self-employed.

Simon Juden, chairman of the group, said the decision would add to the confusion and uncertainty surrounding family business taxation.

He said: "This result is bound to make a lot of people think twice about spreading their wings and starting a family business.

"The way Arctic Systems is set up is typical of the way accountants say a family business should be structured."

Howard Flight, Arundel and South Downs MP, who has been supporting Mr and Mrs Jones through-out the case, said the commissioners' decision undermined independent taxation rules laid down in 1989. He said: "There was always an understanding money would be transferred between partners and the income would be treated 50:50 so the wife would not be a chattel to the husband.

"The decision, in this particular case, does seem to suggest the wife is merely an appendage to the husband and I think that is a cause for deep concern. If two senior special commissioners cannot agree on something as fundamental as this and indeed have opposing views, it completely undermines self-assessment."

A spokesman for the Inland Revenue said: "To say the legislation is sexist is to presume the income is generated by one sex in all cases but the legislation applies equally if the person generating the income is male or female.

"There is no parallel between family law and tax law. Section 660 of the 1936 fiscal legislation relates solely to the payment of tax in a specific set of circumstances. It does not affect ordinary businesses. It is only there to prevent people using contrived arrangements to avoid paying tax at the expense of those who pay their fair share."

The commissioners' decision appears to contradict the divorce courts where, even if the wife has not played an active part in developing a business, she is likely to be entitled to a half share for nurturing the breadwinner.