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UK Contractor Appeals Retrospective Tax Change

Wednesday, November 10, 2010

Three Court of Appeal judges are due to decide whether the UK government breached the rights of a self-employed IT contractor when it closed an offshore tax scheme and imposed a huge retrospective tax penalty.

The contractor, Robert Huitson, argues that the government had several opportunities to close down the avoidance scheme, which utilized trusts based in the Isle of Man, in the years before it changed the law in the 2008 Finance Bill allowing HM Revenue and Customs to impose notices for back taxes, fines and penalties stretching back to 2001.

Huitson, who began using the scheme in 2001, was landed with a GBP100,000 tax charge and many other contractors were also hit with tax bills that they could not pay without selling assets such as the family home. According to Huitson's legal representatives, the retrospective nature of the legislative change brought about unwarranted financial and mental distress for those concerned, and violated article 1 of the European Convention of Human Rights (ECHR) by denying them the right of 'free enjoyment' of their private property.

HMRC argues that users of the scheme were warned well in advance of the 2008 Finance Bill becoming law, and that the measure was both proportionate and compatible with the ECHR.

Earlier in the year, Mr Justice Parker ruled in the High Court that HMRC was within its rights to pursue individuals who had used "wholly artificial arrangements."

However, the Professional Contractors Group (PCG), which lobbies on behalf of independent contractors in the UK, has said that Huitson and others had arranged their affairs perfectly legally up until the point when the law was changed, and a ruling in favour of the government could open the door to further retrospective tax claims by HMRC.

"Whilst PCG in no way encourages offshore tax arrangements we object in the strongest terms to taxpayers being retrospectively penalized for arranging their tax affairs in a way which was entirely legal and proper at the time they undertook to do so," PCG Chairman Chris Bryce commented at the time of the High Court ruling.

Lord Justice Mummery, Lord Justice Morgan and Sir Paul Kennedy are not expected to announce their decision until December or January.