BN66 / Section 58 / Contractor Offshore Schemes

Thousands of contractors used offshore tax schemes in the years before (Section 58) the Finance Act of 2008 stated that (bn66.pdf) "UK residents are taxable on their income wherever it arises" following the Government's announcement that they were to crack down Double Taxation Treaty 'Abuse' by UK residents. The legislation's objectives were to:

• clarify, retrospectively, legislation introduced in 1987, which itself was retrospective, so that it has effect as intended. This will ensure that, notwithstanding the wording of any double taxation treaty, UK residents pay UK tax on their profits from foreign partnerships; and
• prevent tax avoidance through the misuse of Double Taxation Treaties by UK residents.

As a result a substantial number of contractors who have used schemes run out of the Isle of Man (and other locations) face crippling back taxes as HMRC can go back as far as 1987 and retrospectively apply tax legislation for those using offshore schemes as a way of avoiding paying UK taxes.

A High court ruling on the 28th January 2010 went against Robert Huitson, an IT contractor, who claimed that retrospective taxes on income received before 2008 Finance Act became law were in breach of the European Convention of Human Rights.

Mr Justice Kenneth Parker disagreed however, which means that contractors using such schemes in the past face being pursued for backdated tax, interest, and penalties.

The articles below detail our coverage of both the legislation and how this has affected IT contractors. You can also visit our forum to talk to contractors affected.

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