On the 28th 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.