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

The GLA says that firms that breach these licensing standards will have their licenses revoked.

Gangmasters now have 12 weeks to comply before enforcement action begins. Should labour providers and umbrella companies fail to heed this warning, the GLA will take action from 17 February 2010.

Also where non-compliance is proven, alongside GLA action, HM Revenue & Customs (HMRC) will seek arrears of tax, national insurance and national minimum wage, with penalties and interest sought where appropriate.

Paul Whitehouse, chairman of the GLA, says: We have issued clear guidance, and the industry has been given 12 weeks to ensure they comply. There are no excuses and we will come down hard on anyone who is operating illegal schemes from 17 February.

The schemes, often referred to as travel schemes, travel and subsistence schemes or mobile worker schemes, were initially set up to benefit self-employed contractors but these schemes are now prevalent among labour providers, making it compulsory for their minimum wage workers.

The schemes legitimacy is dependent on whether expenses paid by the employer have genuinely been incurred by the worker, and whether it may then breach the national minimum wage.

The GLA says it has come across recent cases where minimum wage workers have well over 50% of their pay attributed to expenses, leaving their actual salary and the taxable amount as low as 97 for a 38hr week.

The GLA has also expressed concerns over more companies within the industry using these schemes to benefit themselves, allowing them to offer reduced rates to customers undercutting those not using these schemes.

Medical professionals are being encouraged under a new Tax Health Plan to tell HMRC if they have understated income. Those who contact HMRC by March 31 2010 to make a voluntary disclosure will be able to put their tax affairs in order simply and on the best available terms.

After that date, using information it holds about how much is paid to them, HMRC will carry out targeted investigations aimed at medical professionals who have not come forward. Substantial penalties or even criminal prosecution could follow for those who have undeclared tax liabilities.

The Health Plan is the first initiative in a new HMRC campaign focused on professionals. It is designed to make it easy for customers to put their tax affairs right and keep them that way.

Launching the campaign, Mike Wells, HMRC’s Director of Risk and Intelligence, said: “Our aim is to make it as easy as possible for people to come forward, make a full disclosure and benefit from the certainty of a reduced 10 per cent penalty that HMRC is making available to those who qualify for this opportunity.

“From April we will be using the information at our disposal to investigate medical professionals who have not declared their full income. I therefore strongly urge any in this group who think they may have outstanding tax liabilities on their income to get in touch with HMRC and get their tax affairs in order simply and on the best available terms.

“This is the first step in enabling those with undisclosed income or gains to avoid a full tax investigation together with much higher penalties. The message is clear: contact us before we contact you.”

The Health Plan will operate in two stages:

• From January 11 to March 31 2010, medical professionals can register their intention to make a voluntary disclosure with HMRC.
• By June 30, those who have registered must have made their disclosure as well as arrangements to pay all tax interest and penalties due.

If HMRC receives a full and accurate disclosure of any income on which tax hasn’t been paid, along with payment, by 30 June, those who qualify can expect a reduced penalty of 10 per cent, thereby avoiding the possibility of a penalty of up to 100 per cent of the tax due and/or an investigation resulting in criminal prosecution.

With HMRC announcing plans to target professionals who have flaunted the rules, particularly when utilising the benefits of a PSC, My Umbrella offers individuals the comfort of knowing that the correct tax obligations are met each week.

www.my-umbrella.net

www.my-paye.co.uk