PAYE umbrella contractors may be counting their blessings following the government’s decision to retrospectively tax freelancers and contractors who used a once-legal taxation scheme.

Section 58 of the Finance Act 2008 banned the use of double taxation treaties and offshore trusts, which were marketed to contractors in the wake of IR35 as they provided more certainty over liabilities. Moreover, in 2002, HMRC acknowledged the schemes as transparent and legal.

Section 58, however, not only ended the schemes but also rendered them illegal for the entire period that they had been in operation. Contractors who used them are now faced with potentially crippling retrospective tax bills.

Opposition to the measure is gathering momentum. In a recent article in Contractor UK, the chairman of the lobby group No to Retro Tax, Alistair Renshaw, wrote:

“George Osborne has said that he considers tax avoidance to be morally repugnant. But true moral repugnance is amending legislation and applying the changes retrospectively to force taxpayers into bankruptcy simply for following the law as it stood at the time. Retrospective legislation damages the investment climate in the country and acts as a disincentive to entrepreneurship and success. It also represents an Orwellian expansion of state power at the expense of individual liberty and protection under the law.”

Additionally, Nigel Mills MP (Amber Valley) has urged Exchequer Secretary David Gauke to reconsider the government’s retrospective taxation plans, and a series of respected professional bodies including the Law Society and the Chartered Institute of Taxation have condemned the proposals.

A report on Section 58 from No to Retro Tax will come before MPs later in the year. Time to think again, Mr Gauke?

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