Offshore and EBT

HMRC are vindicated by the Appeal courts for using retrospective tax legislation.

Are you Based in the UK?

Contractors were given a sharp reminder that, if you live and work in the UK, you must pay tax in the UK. Offshore umbrella companies and EBT schemes will leave contractors liable for massive bills.

Adam Jordan, Account Director at RACS Group explains, "EBT schemes which are established for no other reason than to avoid paying UK income tax will leave members liable for massive bills as HMRC are vindicated by the Appeal courts for using retrospective tax legislation."

Clear & Excellent

After months of deliberation Appeal Judges have given their verdict in the case of Huitson V HMRC. It is devastating news for contractors who used DTA's (Dual Taxation Agreements) to avoid paying the proper levels of Income Tax and National Insurance in the UK.

The appeal was summarily dismissed with the original judgement in the case being described as 'clear and excellent'.

Laws Backdated

Jordan adds: "Huitson V HMRC is an important case as it concerns the extent to which HMRC may bring forward retrospective legislation to combat tax ‘schemes'.

"It is an important general principle that retrospective legislation should be avoided as citizens need to know that there is legal certainty in order to carry on their activities."

Isle of Man

Huitson utilised a tax planning scheme marketed by Montpelier Tax Consultants which purported to utilise the UK/IOM Double Tax Agreement to exempt Huitson's earnings from UK income tax.

In 2008 HMRC changed the law to ‘clarify' that the Double Tax Agreement cannot be used to create such a result but importantly changed the law so that the new clause was deemed to have always been in effect.

Background

Huitson is an IT consultant and has at all times been a resident of the UK and liable for UK taxation on his worldwide income. The end users of Huitson's services are all based in the UK.

Until 2000 Huitson operated as a self-employed consultant working through an intermediary.

Schedule 12

However, Finance Act 2000, Schedule 12, provided that workers supplying services through an intermediary could be treated as if they were employees rather than self-employed persons for income tax and NI purposes.

Consequently Huitson became a client of Montpelier in June 2001; they provided advice to Huitson with respect to a tax avoidance scheme seeking to take advantage of the UK/IOM Double Tax Agreement.

What to Do?

"It's unrealistic to think you don't have to pay tax." Jordan states, "If you are currently involved with a business that uses offshore tax structures, or loan schemes, now is the time to change to a compliant umbrella company."

If you're based purely in the UK then you must pay the correct amounts of Tax and National Insurance on all your earnings.