The contractor was attempting to claim that his human rights were being breached by HMRC retrospectively applying tax legislation that affected his tax during his time working through the offshore umbrella company provider, Montpelier. He is now faced with a £100,000 tax demand.

Judge Mr Justice Parker rejected the contractors claim, saying that HMRC had warned users of such schemes that they may be challenged in the future, and that the Government was legally entitled to change tax laws retrospectively to squash ‘artificial arrangements’. The retrospective taxation for such avoidance schemes can now go back to 1987.

Montpelier run offshore solutions for UK contractors via the Isle of Man with what has turned out as questionable ‘tax solutions’ offering high net pay percentages.

In the last Budget HMRC signalled their resolve to target offshore arrangements where people are ‘not paying the right amount of tax’ and this win in the High Court is likely to see them stepping up their efforts to investigate similar schemes.

• “The FT reported that scores of contractors had participated in the scheme and many now faced bankruptcy from these backdated tax demands. Fortunately this will affect no contractors using UK based compliant provisions. We have long held the view that such offshore arrangements would not pass the HMRC’s ‘paying the right amount of tax’ test and would therefore be challenged.”

The impact on many contractors may be severe as they could already have spent their ‘tax savings’ and are unlikely to get too much sympathy from HMRC or their tax collection agents.

One knock-on effect of this win could be that HMRC may now try to impose such retrospective tax changes into other areas, which would be very unwelcome!

My Umbrella Advice

If agencies or contractors are considering that very attractive offer of offshore umbrella company services that just seems too good to be true, ignore it and you may save yourself a lot of sleepless nights and a lot of tax, interest and penalties too.

• “If you have any agency or contractor friends who are partner offshore umbrella companies and are getting nervous (and rightly so), we would be very happy to speak to them about traditional HMRC compliant umbrella company options instead. Give us a call now (0161 713 1730) or email us directly for some free advice.”

The transition to the new system has, however brought to light discrepancies in our existing records and this is resulting in a number of incorrect notices being issued. The vast majority of notices will be correct but there will be cases where, because the data carried over from our old systems does not match employers’ data, some people receive an incorrect coding notice or more than one coding notice for the same employment because of these discrepancies. This is a transitional issue caused by data mismatches, rather than an IT issue and will be resolved once we have cleared these from the system.

We are aware of the issue and apologise for any inconvenience caused. There is plenty of time to put the codes right before the start of the tax year and we are doing everything we can to rectify the position and ensure no one pays too much tax when the new tax year starts in April 2010.

However, anyone who is concerned that their code may be wrong should check it using the guidance included with the code and on our website.

Find out more about tax codes and your PAYE Coding Notice

If customers cannot resolve their query, they can telephone 0845 3000 627 so we can ensure the right tax code is applied in time for the start of the new tax year on 6 April 2010.

More about income tax, tax codes and getting your tax right

44% of employees have paid too much tax

Your employer deducts tax straight from your wages and follows the guidelines of H M Revenue & Customs according to your given tax code. It is estimated that 44% of employees have paid too much tax simply because their tax code is incorrect. Here at PAYEright, we can check your tax code and liaise with H M Revenue & Customs to refund the money you are owed.

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