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The PCG have spoken out regarding their view that IR35 regulations should not affect contractors who are working on several different projects for the same client. It is the view of PCG that HMRC should only be concerned with the nature of the arrangement between the contractor and client and not the duration of the agreement.

The PCG believe that contractors must be able to prove that they are working on separate projects, even if this is for the same client, and that this is not the same as ongoing work. If the contractor can prove this, it is the belief of the PCG that HMRC will “not have a case”. It is also important that contractors can prove to HMRC, if necessary, that they have an “unfettered right of substitution” and that through their contractual agreement and subsequent working practices they have control over the work they carry out.

PCG said: “HMRC must prove that personal service, control and mutuality of obligations (the expectation that work will be offered and accepted) existed in the engagement.”

Managing director of Brookson, Martin Hesketh responded: “This news article confirms the importance of contractual documentation. Not only should contractors who work on multiple projects ensure that there are contracts in place for each, it is essential that you read the contracts and ensure that they are consistent with your working practices and accurately reflect your relationship as an independent contractor with your client.”

All businesses with an annual turnover of £100,000 will be required to file their VAT returns online as of 1st April 2010. They will also be required to make electronic payments in respect of any VAT due.

Businesses with an annual turnover of £100,000 as at 31st December last year should have received a letter from HMRC last month which would have explained that VAT returns would be online as of next month. The enclosed guide detailed the steps that all affected businesses would have to take to prepare for the changeover.

Although this change is currently only affecting companies with an annual turnover exceeding £100,000 it is expected that this will be rolled out to all VAT registered companies by 2012.

As for the companies who will be liable for VAT online services from April, there are some steps which they will need to take in preparation. First of all, the company will need to be registered for the VAT online service. You should receive an activation PIN by post within 7 days. To ensure you do not miss any deadlines you can also sign up to the free email reminder service. You should also speak to your accountant if he is the person usually responsible for filing your VAT return. It is also necessary to check your personal business processes to examine whether or not there is anything you need to adapt in light of these changes. You can also set up your preferred payment method when you register online, however, if you pay by cheque you will be required to order the HMRC Bank Giro slips for paying the cheques into participating banks.

New legislation has come into force which will allow HMRC to publicise the names and details of individuals and companies who evade tax.
This will be effective from 1st April 2010.
Commenting on this new legislation. Financial secretary to the Treasury, Stephen Timms said: “It is only right that people pay their fair share of tax, which supports vital public services. We know that law-abiding taxpayers will want to see the results of HMRC’s investigations into tax cheats. This new approach should make people think again about trying to get away with tax fraud. As well as having to pay the tax, interest on the tax, plus penalties of up to 100 per cent of the tax lost, they also now risk being identified publicly.”
The new legislation follows on from the New Disclosure Opportunity which gave taxpayers a deadline of 4th January to inform HMRC that they were planning to disclose unpaid taxes in exchange for a reduced penalty as long as HMRC had not already requested such a disclosure. The reduced penalty stood at 10 per cent as opposed to the 100 per cent if investigated by HMRC and found to have owed taxes. It is believed that this disclosure opportunity was taken up by around 10,000 people.
Now HMRC are planning to investigate those who have not made disclosure and who they believe to owe taxes. This will commence on 12th March with information which has been provided to HMRC from over 300 banks.

A petition has been put together by the Federation of Small Businesses (FSB) alongside other recruiters and businesses to request the government to freeze national insurance. The FSB has conducted research which proves that is employers’ national insurance increases by the proposed one per cent, it will result in 57,000 job losses. The increase is also unlikely to reduce the public spending debt. The petition, which can be found at www.no-nics-rise.co.uk, is seeking to reverse the planned rise in contributions. The FSB believe that small businesses taxes should only ever be used as a last resort as small businesses play a vital role in the UK economy.

John Wright, National Chairman, Federation of Small Businesses, said: “This petition – calling for no rise in National Insurance Contributions – will tell Government that real action needs to be taken to really help tackle unemployment. The rise in National Insurance is a tax on jobs and will cost the country in thousands of jobs, as well as prevent small firms from taking on more members of staff at this crucial time in the country’s economic recovery.

“The FSB has been calling on the Government to take steps to make it easier for the country’s 4.8 million small firms to employ staff. The FSB knows that small firms want to recruit over the coming year, but are put off by taxes. The Government can give the economy a real helping hand by freezing National Insurance and helping to encourage small firms to grow and take on additional employees.”

The Chartered Institute of Taxation (CIOT) has spoken out about their concerns regarding the increasing use of retrospective rules within the tax system in the UK. Following on from the High Court ruling a few weeks ago, the Treasury have since confirmed that retrospection would be applied to amend the tax rules on manufactured dividends. Stephen Timms, financial secretary to the Treasury, confirmed last week that this retrospective rule would be applied to October 2007.

Commenting on this development, tax policy director of CIOT, John Whiting told Contractor UK: “We think it [retrospective legislation] damages the key principle of certainty in the tax system that is so important to its reputation and is inherently unfair.”

The Chartered Institute of Taxation further evidenced their concerns by highlighting the section 58 addition to the Finance Act 2008 just two years ago. Of course, it has always been stated that the purpose of that provision was to tighten a tax loophole but it has resulted in a retrospective rule which can now be applied as far back as 1987.

The Institute stated: “We can understand that at times the government wants to take action to ‘confirm the general understanding of the tax system’ in the light of questions raised. However, this needs to be used with great caution: it must not dislodge the principle that the taxpayer is taxed on the wording of the legislation in place at the time of their actions. We are taxed on what legislation says, not what HMRC thinks it says”.

On behalf of CIOT, Mr Whiting concluded: ““We need a clear statement as to when retrospection will be used and its boundaries – and parliament needs to consider such boundaries with care.”

HMRC have announced that they will extend the consultation period on the proposed ‘deliberate wrongdoing’ legislation. This move has been welcomed by the Chartered Institute of Taxation (CIOT).The consultation period has been extended until the 28^th April which means that this would not become law until the next parliament as it would miss next month’s Budget.

Commenting on this news, President of CIOT, Andrew Hubbard said: “We are pleased to note that HMRC have moved quickly to respond to the concerns which we raised about the draft legislation. We particularly welcome the fact that any applications to the Tribunal for access to working papers of agents who are accused of deliberate wrongdoing must be made at a hearing which the agent has the right to attend. The interest of justice would not have been served had the proposal to deny agents the right to be represented been implemented.

He concluded: “We also welcome the fact that the consultation period is to be extended. We fully support HMRC having a power to deal effectively with the very small number of agents who are involved in what amounts to fraud in relation to a client’s tax liabilities, but the legislation as drafted went far wider than this. In our opinion, it would have been unworkable and would have created a very damaging rift between HMRC and tax advisers. We believe that the extension to the time limit will allow time for mature reflection and result in legislation which is properly targeted, effective and proportionate.”

On the 28^th January, the High Court ruled that HMRC’s retrospective tax recovery is lawful.  Now, contractor services provider Giant Group has spoken to the Recruiter about the effect of this decision on thousands of contractors.

Any contractor who has signed up to an offshore scheme to cut tax liability now faces this scheme become illegal retrospectively. The tax liability can be backdated as far as 1987 and contractors would be liable.

This recent ruling centred around a contractor who must now pay £80,000 in retrospective tax due to legislative measures introduced in the Finance Act 2008. It has been predicted that many contractors could face bankruptcy as a result of this rule.

Managing director of Giant Group, Matthew Brown, commented: “This ruling sends a clear signal that if tax arrangements are blatantly artificial, they can be taxed retrospectively. Even if a tax scheme exploits a loophole in the current law there are still risks using it. If a tax scheme sounds too good to be true, it probably is. Numerous providers of tax services to contractors operate offshore. Contractors and recruiters need to be wary about dealing with these providers as the risk of retrospective measures from HMRC has significantly increased.”

He continued: “Contractors could try to persuade the HMRC to collect outstanding tax from scheme promoters, but this may not be possible, in which case recruitment agencies could also be in the firing line. HMRC has already shown its willingness to include debt transfer provisions in anti-avoidance legislation, so in cases where it believes debts will be unrecoverable from contractors, recruiters could be targeted if schemes are deemed to be managed service companies (MSCs).”

Adding to the anxiety around offshore schemes, many contractors who have signed up to the Mirasol Holdings scheme are concerned this week following the news that the Albany UK has gone into administration.

PCG, who represent contractors and freelancers in the UK, have now given their response to the landmark BN66 ruling at the High Court. The case centred around IT consultant Robert Huitson making a challenge against HMRC’s right to claim taxes retrospectively. Mr Huitson’s lawyer had argued that the retrospective tax levy was a breach of his human rights. Mr Justice Parker, presiding, disagreed stating that HMRC were within their rights to challenge users of artificial schemes and such individuals were given warning that this could be the case. There has since been widespread concern throughout the industry that this decision will open the doors for further retrospective tax liability.

On their website, PCG chairman Chris Bryce responded: “Whilst we recognise that the High Court Judge has clearly set out his reasons for upholding the 2008 Finance Act which allowed the Revenue to claim back this tax retrospectively in this particular instance we share a common concern with all taxpayers that this judgement may be seen as opening the door to retrospection.”

He continued: “For a seven year period up to 2008 HMRC failed to take any action before the law was changed, despite being well aware of these arrangements.  Whilst PCG in no way encourages off-shore tax arrangements we object in the strongest terms to taxpayers being retrospectively penalised for arranging their tax affairs in a way which was entirely legal and proper at the time they undertook to do so.”

Mr Bryce concluded: “I note our concern with retrospective taxation is widely shared.  PCG will continue to watch this area very closely. HMRC must not feel this is a green light to retrospectively challenge other, entirely legitimate behaviour.”

The industry as a whole is still digesting the BN66 ruling which was handed down at the High Court last week. Mr Justice Parker ruled that HMRC could retrospectively claim tax back as far as 1987.

Speaking to Contractor UK, Chartered Institute of Taxation’s John Whiting, said: “ think all tax practitioners will worry a bit about this judgement if it is seen as opening the door to retrospection. [This judgement is] of concern to all because tax systems should aim to give certainty. Retrospection is inherently unfair, creates uncertainty and risks damaging trust in the system.”

Meanwhile Simon Dolan from SJD Accountancy placed doubts on Mr Justice Parker’s claims that HMRC would be considering an individual’s financial position before making the decision to pursue tax from them.

Dolan stated: “Despite the judge’s warm words about the Revenue’s sympathetic approach to taxpayers suffering financial hardship, I’m sure that going forward the taxman will have no hesitation in approaching them for the tax owed. This is obviously a disappointing result for lots of contractors who have been caught out by the promises of the scheme provider, resulting in uncertainty and worse for many of the provider’s customers.”
He continued: “What will happen now is that the tax demands will now become payable, up to the point that an appeal to yesterday’s ruling overturns them [But] this is not taxpayers falling upon hard times, rather HMRC will see it as taxpayers choosing to get involved in a complex, anti-avoidance offshore scheme that, for some, saved hundreds of thousands of pounds”.

The Royal Court of Justice has ruled against the retrospective effect of BN66 being unlawful. Mr Justice Parker presiding disagreed that there was a breach of human rights with regards to the backdating of the Finance Act Section 55. This retrospective rule has only been in effect since 2008 and imposes tax liabilities dating as far back as 1987. This is the first time that the rule has been backed by the courts. Mr Justice Parker also refused an appeal. Delivering his ruling he stated that had the taxpayer acted prudently there would be no cause to challenge the backdating.

He stated: ““At no time did HMRC indicate to affected taxpayers, including the claimant, that they could safely rely upon the arrangements. HMRC consistently maintained that the arrangements did not work, and advised taxpayers to pay on account the income tax which HMRC said was properly due.”

Much of this case rested on the seven year period of inaction by HMRC, however the judge appeared to be of the view that HMRC’s actions were proportionate while taxpayers utilising a BN66 scheme knew the associated risks.

He continued: “It might also have been thought that, with the passage of time and long inaction on the part of HMRC, the likelihood of retrospective measures receded, and it was safer to let sleeping dogs lie. However, if such tactical calculations were made, taxpayers simply ran the risk that at some point parliament might legislate to put the matter beyond doubt, and might well do so…retrospectively”.

Mr Justice Parker concluded: “In so far as taxpayers may have relied upon the route previously travelled by HMRC and the legislature in Padmore, they did so at their own election and risk.”