HMRC Wins The Right to Collect Retrospective Taxes From Contractors Using Off-Shore Schemes

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Having just won a high court ruling the HMRC is now free to introduce anti-avoidance measures to apply tax retrospectively to many thousands of contractors lured into using tax-saving offshore schemes.  Such schemes become increasingly popular since the MSC (Managed Service Companies) legislation was introduced in 2007, which made it much harder for contractors to minimise tax using UK-based providers.

This landmark ruling means that previously legal offshore schemes could now, retrospectively, be considered illegal, leaving thousands of contractors with huge tax debts accumulated over many preceding years, which will undoubtedly lead to a deluge of bankruptcies.

The High Court ruled on 28th Jan that an IT contractor must pay retrospective tax of £80K after the HMRC introduced measures in the Finance Act 2008 to close a loophole preventing contractors receiving income offshore via a trust at a taxable rate of 3.5%.

Steve Bishop, Technology Resourcing’s Management Accountant, commented “This ruling highlights the very real risks that contractors run when they exploit apparently legal loopholes, when the resulting tax arrangements are manifestly artificial. Contractors should be as wary as we are when considering using offshore service providers, since the risk of potential retrospective action from HMRC has now increased dramatically”.

He continues to advise contractors “If you’re introduced to any tax scheme which seems too good to be true, in our experience it generally is.”