Tax & Accounting News

Tax dodgers face £100million bill

19/04/2010

UK residents who used a complicated offshore scheme to avoid paying tax now face a £100million bill after HM Revenue and Customs (HMRC) won a court case concerning its right to levy charges retrospectively.

HMRC had been seeking unpaid income tax from 2,500 users of a tax avoidance scheme in the Isle of Man, which involved participants channelling their work for customers and their income from that work through a complicated series of partnerships and trusts to avoid income tax in both jurisdictions.

One of those users – IT consultant Robert Huitson – challenged HMRC’s right to demand tax using the 2008 Finance Act, since the arrangements had not been explicitly illegal when he took them out seven years earlier.

However, in the High Court, Mr Justice Parker upheld the act, which closed the tax loophole retrospectively, and rejected Mr Huitson’s claim that changing the law in this way infringed his human rights. He said HMRC had warned users of the tax avoidance scheme that it might be challenged, and the government had the right to change the law retrospectively to eliminate ‘artificial’ tax arrangements.

Mr Huitson’s lawyer also argued that forcing the users of the scheme to pay up would leave some needing to sell their homes or even heading for bankruptcy, but Mr Justice Parker argued that, although HMRC would take financial hardship into account when levying tax, to let off those who could not afford to pay would be unfair on users of the scheme who had put money aside, not to mention the vast majority of taxpayers who did not use such schemes.

The Chartered Institute of Taxation (CIOT) has expressed concern that this judgement ‘opens the door to retrospection’, meaning other similar schemes could now be under threat.

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