Offshore contract case lost in high court
It would appear that the HMRC are making good on their commitment to chase off-shore schemes. A recent high court case has been lost by a contractor who was utilising such schemes and has sent shock waves through the industry.
Philip Fanthom (Managing Director - Jenrick IT) commented ;
“We are constantly updating our tax and legislative information on our website and blog to keep contractors informed. We did, in fact warn about the possibility of a HMRC clampdown on ‘off shoring’. Even still, there appears to be a worrying agenda against the freelance community by the government. “
(More details about the case is below - courtesy of Contracting Made Easy)
BN66 Case is Lost in High Court
Many Contractors who utilise offshore tax efficient remuneration strategies will be worried by the news that HM Revenue & Customs is poised to chase an approximate £100m in income tax from users of an offshore tax avoidance scheme, following a recent High Court ruling.
IT contractor Robert Huitson has lost his court case in which he was trying to have the retrospective element of BN66 classed as unlawful. The argument that this type of retrospective action was against human rights fell on deaf ears.
Mr Justice Parker rejected claims on behalf of the taxpayer that the backdating of Section 55 of the Finance Act breached human rights. His court also refused an appeal, paving the way for HM Revenue & Customs to pursue the taxpayer, Robert Huitson, and thousands like him.
The ruling has set a dangerous precedent that could result in HMRC applying retrospective taxation to other groups of contractors, as well as other taxpayers, who use tax mitigation schemes.
Much of this case rested on the seven year period of inaction by HMRC, however the judge appeared to be of the view that HMRC’s actions were proportionate while taxpayers utilising a BN66 scheme knew the associated risks.
Chartered Institute of Taxation’s John Whiting, said:
“I think all tax practitioners will worry a bit about this judgement if it is seen as opening the door to retrospection. This judgement is of concern to all because tax systems should aim to give certainty. Retrospection is inherently unfair, creates uncertainty and risks damaging trust in the system.
However, if such tactical calculations were made, taxpayers simply ran the risk that at some point parliament might legislate to put the matter beyond doubt, and might well do so…retrospectively”.
The landmark case was the very first time that a judge had backed the retrospective element of BN66 and has left a great many contractors disappointed, many now face large retrospective tax bills. It’s almost certain that there will be more challenges to BN66 and the UK governments ability to penalise people under new tax legislation retrospectively.
Montpelier, the provider of the scheme which Huitson used, has vowed to appeal the decision, though such an appeal will take time before it is heard by a higher authority.
