Tax Advice _ Tax Windfall for HMRC

Tax Advice - Tax Windfall for HMRC

by Ashley Clark, Director

Until the law was changed in 2008, UK contractors and consultants were taking the opportunity to channel some of their work through trusts, generally in the Isle of Man.  The result was to receive that income free of UK taxes.

HMRC has always been opposed to such schemes and closed the loophole in 2008.  However, an ongoing case in the High Court has now ruled that people receiving income through these trusts will now be taxed retrospectively.  The gain for HMRC is estimated at £200m.

Whilst an appeal is currently being made by 3 of the top 4 legal firms in the UK HMRC say the case is clear – the schemes were only set up to avoid tax, which would otherwise have been payable in the UK on those earnings.  This is the reason they are seeking retrospective taxation.

Our View: Many contractors went into these trusts without understanding the real consequences.  Some of the trust operators have offered to pay at least some of the tax liabilities if the final appeal fails, although it does seem as though most people will have to find the back tax owed.  The UK is massively in debt and tax revenues will be vehemently pursued by HMRC.  These cases came at the wrong time and the case for appeal is not looking good.

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