Reply to: IR35/ Offshore scheme/ HMRC - potential liability

[BrilloPad]

That just about sums it up I think, and why they may leave returns open indefinitely unless you ask for closure. The problem is who wants to stick their head above the parapet?

You should ask Horizon whether they have any plans to force the issue with HMRC and push for closure.

As Emigre said, until BN66 is resolved I think it's unlikely we'll see more retro legislation.

So thats 2012 then.

[DonkeyRhubarb]

But maybe that's what it' sall about right now and their intention is (simply): you tried to screw us for tax and NI, so we're going to make your life as miserable as possible, without actually being able to nail you to the mast right now , but don't ever try to relax matey boy.

That just about sums it up I think, and why they may leave returns open indefinitely unless you ask for closure. The problem is who wants to stick their head above the parapet?

You should ask Horizon whether they have any plans to force the issue with HMRC and push for closure.

As Emigre said, until BN66 is resolved I think it's unlikely we'll see more retro legislation.

[pimpernell]

The significance of BN66 should not be underestimated. If the Govt win we can expect a whole raft of retrospective measures. It is notable that none of the measures in this year's Finance Act had retrospective impact in the way that BN66 did. My personal feeling is that further retrospective legislation ahead of the far end of the BN66 legal process would weaken the Govt's case and is therefore unlikely irrespective of which party is in power and also irrespective of the current economic woes.

See what you mean. I had thought that they were able to use retrospective legislation in this case alone because of the 1987 clarification, but if it sets a precedent.....

As far as EBTs are concerned I think they've slammed the door shut for the future.

I've received the COP8 because presumably HMRC don't think the EBT scheme I was in was workable in terms of avoidance, but I haven't seen any legislation that addresses directly the set up I was in, and they haven't asked for documentation from me.

But maybe that's what it' sall about right now and their intention is (simply): you tried to screw us for tax and NI, so we're going to make your life as miserable as possible, without actually being able to nail you to the mast right now , but don't ever try to relax matey boy.

[smalldog]

just one correction, we did pay PAYE on earnings, just not what HMRC wanted us to pay. so the statement zero UK tax was paid is completely incorrect..

and yes regardless of whatever you think of the schemes morals or legality, if HMRC get away with this one, its only a matter of time people.....Thats why we ALL need to rally to the cause, not snipe at people who utilised a legal loophole to optimise their tax position.

[Emigre]

The Paymaster General's statement in December 2004 was directed only at PAYE related avoidance schemes as a date to which they might apply retrospection. As far as I'm aware it has not been tested and IMO as time goes by the lack of retrospective legislation utilising that date will render it less enforceable.

BN66/Section 58, as Pimp has said, is a special case. According to the Govt it was drafted to "clarify" existing legislation. In short HMRC preferred to pass new legislation than test the original in the Courts. So for "clarify" we probably need to read "change".

In terms of dates the Govt claim that BN66 was passed to clarify legislation passed in 1988 to rectify a surprise Court result in the Padmore case and that the 1988 legislation was itself retrospective potentially as far as 1945.

Pimp's original post was spot on with the reason why people found some of the more aggressive tax schemes. Simply legislation has not provided adequate certainty. Contractors did not like the uncertainty over IR35, particularly as it accumulated year on year. I joined the MTM scheme because it was supported by leading tax Counsel opinion - in other words I had increased my level of certainty over my tax position.

The real issue with retrospection is that it is manifestly unfair. Govt has all the power and authority to pass whatever legislation they like, its not unreasonable to ask that they actually manage to draft it in such a way that it achieves what they believe is their intention. If they fail to do that they should expect people to use the gaps. In Human Rights law you cannot be tried under new legislation for something that wasn't a crime at the time. Primary HR legislation does not extend this break to civil matters although the fact that there is a Judicial Review as well as a direct application to the ECHR probably sums up the way people feel. Time will tell on those.

The significance of BN66 should not be underestimated. If the Govt win we can expect a whole raft of retrospective measures. It is notable that none of the measures in this year's Finance Act had retrospective impact in the way that BN66 did. My personal feeling is that further retrospective legislation ahead of the far end of the BN66 legal process would weaken the Govt's case and is therefore unlikely irrespective of which party is in power and also irrespective of the current economic woes.

[eliquant]

As far as I can see the only risk free fool proof way is to leave the stinking cess pool that the UK has become, forever.

You read my mind.

[centurian]

true unfortunately, past events pretty much confirm they do read both here & the pcg forums.

Better things to do with their time? What like surf porn & look up details of celebrities & ex spouses? They tried spending their time doing that, none of them went to prison unfortunately!

What events ??

[vetran]

true unfortunately, past events pretty much confirm they do read both here & the pcg forums.

Better things to do with their time? What like surf porn & look up details of celebrities & ex spouses? They tried spending their time doing that, none of them went to prison unfortunately!

[centurian]

(I want to be careful because I know HMRC read this site)

Surely they must have much better things to do with their time

For sure, don't post anything that identifies you, but at the same time, chill a little

[pimpernell]

And the IR35 law (Intermediaries Legislation) was passed in 1999, with words to the effect of "if you're a disguised employee, then pay up".

They may try and argue that the law was perfectly clear enough - we know it applies to us and we know we are caught by the legislation - we are just trying to illegally bypass it (i.e. evade rather than avoid). So one day they decide to "retrospectively clarify" it for us.

FWIW, I don't think they will do that. BN66 was about paying zero UK tax and that really wound up HMRC. It was also a lot easier to track the "offenders" as they operated through specific schemes.

IR35 is a bit more grey - just that I wouldn't write off BN66 as complete a one-off just yet.

I'm with you on IR35 in as much as I don't think much can happen there.

BN66 is a particlar set of circumstances, where as you say no UK tax was paid, and I still maintain that the action they've taken is possible because of the 1987 law.

The scheme I was in I actually paid PAYE on a UK salary, but other remunerations (I want to be careful because I know HMRC read this site) were paid through an EBT. The scheme I was in started before April 2004, and when the new legislation was brought in they scheme closed down to newcomers. All that is perfectly within the rules. I don't think any other income was ever declared on my tax returns with an SRN because of this. But again that was within the rules.

But it comes down to the direction HMRC are going (see first post), and what is possible retrospectively.

[centurian]

I take the point, but they are able to "try it" (i.e. apply retrospectively) in this case because they're arguing that the law was originally made in 1987.

And the IR35 law (Intermediaries Legislation) was passed in 1999, with words to the effect of "if you're a disguised employee, then pay up".

They may try and argue that the law was perfectly clear enough - we know it applies to us and we know we are caught by the legislation - we are just trying to illegally bypass it (i.e. evade rather than avoid). So one day they decide to "retrospectively clarify" it for us.

FWIW, I don't think they will do that. BN66 was about paying zero UK tax and that really wound up HMRC. It was also a lot easier to track the "offenders" as they operated through specific schemes.

IR35 is a bit more grey - just that I wouldn't write off BN66 as complete a one-off just yet.

[pimpernell]

What you state is correct - however it is only an "exception" in that it is the first time they have tried it.

If they are successful, they may decide to tighten IR35 and apply it retrospectively on the basis that they believe the original legislation was clear and we simply interpreted it wrong.

I still don't understand how retrospection can go back more than 6 years though. Perhaps one of the BN66 experts can explain this. Mind you, 6 years will still hurt.

I take the point, but they are able to "try it" (i.e. apply retrospectively) in this case because they're arguing that the law was originally made in 1987. Other schemes, e.g. EBTs don't hinge on this, in as much as they were 'legal' at the time, so they don't have the convenience of past legislation to hang off.

I'm just trying to understand the worst they can do. I can completely understand that HMRC want to close what they classify as 'avoidance schemes' down; what I can't get my head round is if they do, and then subsequently win the argument (in court) that the schemes were never legal (despite whatever Queen's Coucel's bona fide may have been available at the time), and so apply tax retrospectively whether there's a limit to how far back they can go. I know about 6 years, but xoggoth has mentioned a 4 year rule (news to me).

personally, I'd like to insure against any future surprises by being proactive now, by buying a CTD then waiting on legal outcomes. If it happens I've covered the interest, if it doesn't then I've got some dosh hived away for my old age.


I just don't know how much to I need to put aside. maybe the safest thing is to take the view that anything I received from the time I joined is liable.

[pimpernell]

What you state is correct - however it is only an "exception" in that it is the first time they have tried it.

If they are successful, they may decide to tighten IR35 and apply it retrospectively on the basis that they believe the original legislation was clear and we simply interpreted it wrong.

I still don't understand how retrospection can go back more than 6 years though. Perhaps one of the BN66 experts can explain this. Mind you, 6 years will still hurt.

Don't see how they can apply anything retrospectively to IR35 since there's been so many court cases already, and according to PCG at least their (HMRC) success rate is pretty limited. Now that would really would be worst case, and would potentially affect every freelancer in the UK.

I can see them wanting to hammer schemes and people involved in them, though. Tax avoidance is anathema to HMRC. They see it as just that - avoidance - i.e. not paying your share of tax. Teachers, nurses and people on PAYE all have no choice, because tax and NIC is taken direct at source. As freelancers because we receive our income gross it's not, so you can see why they (HMRC) are so suspicious. And we live alongside people on PAYE as part of the community. It's socialist doctrine, as oppose to 'every man for himself'. Whatever your personal politics.

It's now been amplified for them by the disclosure rules in 2004, the fact that IR35 sent so many people scurrying (myself included) and in particular current chronic state of the economy.

BTW - i don't work for HMRc, just in case you're wondering.

[centurian]

BN66 is an exception, I believe, in as much it was based on interpretation of a decree passed in 1987. Rightly or wrongly, HMRC are saying that "no you (the scheme provider) interpreted that legislation incorrectly, you were wrong, so any beneficiary is liable to tax and NI. So now cough up. Whether they get away with this or not will bedecided in court, I understand at the turn of the year.

What you state is correct - however it is only an "exception" in that it is the first time they have tried it.

If they are successful, they may decide to tighten IR35 and apply it retrospectively on the basis that they believe the original legislation was clear and we simply interpreted it wrong.

I still don't understand how retrospection can go back more than 6 years though. Perhaps one of the BN66 experts can explain this. Mind you, 6 years will still hurt.

[pimpernell]

This is HMRC and a Brown governemtnwe're talking about. There are no clean answers...

The danger of BN66 is that it is framed in such a way as to make it retrospective, so in theory any tax charges that arise from it can go back to when the original law was made in the mid 80s. Clearly interest will be applied ( I bkleive it has to be, legally), but penalties may be waived (or may not; again, who knows?). Clearly this has not yet been resolved and won't be for a while yet,

However if a scheme is closed by a new law, as most will have to be, then they can't apply it retrospectively; it takes effect from the relevant budget date going forward. Why else are HMRC pushing voluntary declaration schemes if not to get tax in ahead of any compulsory changes...?

To be honest, UK plc is so cash strapped, I wouldn't be relying on Cameron do repeal or slacken any of the current HMRC drive. Apart from anything else, from the stats I've read, they've successfully gathered £11bn in tax from clamping down, so continuing with this is a no brainer for any government