Register online or call us free on 0800 848 88 88

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.”