The potential perils of IT contracting through limited companies have just been foregrounded by the successful prosecution of an IT freelancer for tax evasion.

IT consultant Stephen Maxwell was found guilty of tax evasion last week after a series of investigations by HMRC. The Revenue’s statement reveals that Mr Maxwell failed to declare income from his consultancy work totalling almost £2 million.

The money was earned between 1998 and 2008 and was channelled by Mr Maxwell into various offshore companies registered in the Isle of Man and Gibraltar. From 2005, the income was paid into his limited company.

Mr Maxwell commanded pay rates of up to £800 per day during the period under investigation, much of it from top City of London firms. He arranged for it to be paid into the offshore firm Gateway 3000 Ltd through several different companies, ostensibly seeking to hide his identity as the final recipient from HMRC.

His decision not to submit any tax returns for his limited company, however, was almost certain to arouse the Revenue’s suspicions. He is estimated to have evaded £623,015 in tax.

Currently remanded in custody pending further reports, Mr Maxwell’s riches to rags story was quickly brandished by HMRC. Revenue spokesman David Odd said that this was a case of “deliberate and systematic fraud.” He added: “Income tax fraud is not a victimless crime and HMRC take a very serious view of anyone who acts in this manner. For anyone choosing not to pay the tax they owe, this case proves that we will vigorously pursue them and bring them to justice.”

Suddenly, PAYE umbrella services seem like the sanest and safest option.

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