APS Statement On HMRC BN66 Case

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“HM Revenue & Customs is poised to chase an approximate £100m in income tax from users of an offshore tax avoidance scheme, following a High Court ruling today.

The Court upheld the right of HMRC under the 2008 Finance Act to seek funds from 2,500 tax evaders, after a failed challenge by a self-employed IT consultant

IT consultant, Robert Huitson, who used an intricate Isle of Man tax arrangement to avoid £85,000 of income tax over seven years, argued HMRC’s retrospective levy on taxes contravened his human rights, the BBC reports.

But Judge Justice Parker rejected this, saying users had been warned about possible future challenges to the scheme, adding the Government has the right to change tax law retrospectively to end artificial arrangements.

At the centre of the case is a ‘tax avoidance scheme’ marketed by Montpelier Tax Consultants (Isle of Man) Limited, through which, using a complex web of partnerships and trusts, UK business contractors or consultants could channel work to customers and also receive their income.

It is rumored that there are many more offshore firms offering similar schemes who HMRC claim will be the next in line for investigation.

How has this happened?

Firms such as Montpelier Tax Consultants (Isle of Man) Limited, have been offering ‘tax avoidance schemes’ to their clients, for many years using the double tax treaty (DTA) which is domestic legislation which gives effect to an international treaty.

A double taxation treaty exists to ensure that where a transaction creates a tax liability in one country, an individual does not incur a similar tax charge arising in their country of residency. In simple terms, where such a dual charge occurs, there is a credit for the tax paid in the country where the tax liability arose.

However, on 12th March 2008 Government announced Budget Note 66 (Double Taxation Treaty Abuse) to stop such transactions from occurring. Legislative changes became effective immediately, i.e. the date of the Budget of 12th March 2008.

In the Montpelier scheme, Huitson became a member of an Isle of Man partnership. The partnership then gifted its earnings to a trust in which Huitson had a life interest. His income was being earned in an Isle of Man partnership – in which Huitson was a partner – the income being bounced out into a trust of which he was the sole beneficiary.

The court ruled it was strongly arguable that Huitson, had all along an interest in the partnership profits and so was liable to UK tax. Therefore the case was ruled in favour of HMRC.

Why is the APS payroll solution not affected?

APS uses a structure that is not classed as a ‘tax avoidance scheme’ due to all transactions being transparent and fully disclosed to HMRC.

The APS structure does not use ‘loopholes in the law’ our solution is an intellectual interpretation of existing legislation within the Income Tax & Pensions Act, the Finance Act and the Company and Trust Acts. Montpelier Tax Consultants (Isle of Man) Limited ran a ‘tax avoidance scheme’ using a loophole in a single piece of legislation.

The APS structure has been in operation and fully disclosed to HMRC for almost twenty years, during this time it has never been successfully challenged by HMRC.

If you are worried that the above ruling affects you in any way and you would like to see our legal opinion on this case or you would like to discuss the products and services we offer then please use the contact form below and a member of our staff will contact you.”

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