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HMRC Win Offshore Umbrella Test Case

3rd February 2010

Have you heard of Attractive Offshore Umbrella Schemes?

Well, last week HMRC won a High Court case to prevent IT Contractor, Robert Huitson, from seeking a Judicial Review of HMRC’s retrospective taxation demands.

Mr. Huitson was attempting to claim that his human rights were being breached by HMRC retrospectively applying tax legislation that affected his tax during his time working through the offshore umbrella provider, Montpelier. He is now faced with a £100,000 tax demand.

Judge Mr Justice Parker rejected Mr. Huitson's claim, saying that HMRC had warned users of such schemes that they may be challenged in the future, and that the Government was legally entitled to change tax laws retrospectively to squash 'artificial arrangements'. The retrospective taxation for such avoidance schemes can now go back to 1987.

Montpelier run offshore solutions for UK contractors via the Isle of Man and have acquired a reputation for questionable tax solutions with high net pay percentages.

In the last Budget HMRC signalled their resolve to target offshore arrangements where people are ‘not paying the right amount of tax’ and this win in the High Court is likely to see them stepping up their efforts to investigate similar schemes.

Many Bankrupt Contractors

The FT reported that scores of contractors had participated in the scheme and many now faced bankruptcy from these backdated tax demands. Fortunately this will affect none of Carrington’s contractors. We have long held the view that such offshore arrangements would not pass the HMRC’s ‘paying the right amount of tax’ test and would therefore be challenged.

The impact on many contractors may be severe as they could already have spent their ‘tax savings’ and are unlikely to get too much sympathy from HMRC or their tax collection agents.

One knock-on effect of this win could be that HMRC may now try to impose such retrospective tax changes into other areas, which would be very unwelcome!

Our Advice

So, if anyone is considering that very attractive offer of offshore umbrella services that just seems too good to be true, ignore it and you may save yourself a lot of sleepless nights and a lot of tax, interest and penalties too.

Do you know someone this may affect?

If you have any contractor friends who are operating through offshore umbrellas and are getting nervous (and rightly so), Carrington would be very happy to speak to them about limited company and traditional HMRC compliant umbrella options instead.

Call us on 020 7324 6020 or email to .

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