BN66 – a blast from the past
The Contractor community has been shocked this month as the Royal Court of Justice ruled that it is not unlawful for BN66 to be retrospective. This could leave some Contractors with tax bills reaching into hundreds of thousands of pounds.
For the first time since its introduction in the 2008 Budget, a court has backed the retrospective rule in BN66 which could open the floodgates to similar rulings.
The case was being argued on behalf of Robert Huitson, an IT Contractor working via scheme provider Montpelier. The argument was put forward that HMRC had breached human rights by backdating the tax owed due to BN66, however the court ruled that Contractors would not be in this situation if they had acted lawfully with regards to their tax liabilities and therefore there was no impact on their human rights.
Some Contractors will be forced to pay back hundreds of thousands of pounds worth of tax. Montpelier has vowed to continue pursuing the case on behalf of their clients but it could be some time before the issue reaches court again.
One of the most worrying consequences of this case could be that now HMRC have won the right to backdate tax liabilities there could be nothing to stop them from doing this with regard to other schemes.
A likely outcome will be a move back to PAYE Umbrellas and PSCs as more risk averse Contractors seek out mainstream solutions.
For those who do incorporate or work via a PAYE Umbrella, the tax planning opportunities presented by pension investment may help soften the blow. It is likely that many of these refugee Contractors will have originally chosen their more exotic payment route before pensions simplification in 2006 and could very well be unaware of the brave new world that now exists with regard to relaxed funding limits (i.e. the ability to invest virtually all annual contract income tax free) and new freedoms on how and when to take benefits at retirement.
Loading…