Last week HMRC won a High Court case to prevent IT Contractor, Robert Huitson, from seeking a Judicial Review of HMRC’s retrospective taxation demands.

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.”