The long awaited decision from the Court of Appeal, in the case of Robert Huitson V HMR&C, has finally been handed down and has dealt a devastating blow to all those contractors who used the offshore trust scheme offered by Montpelier. After the initial decision by HMR&C to apply legislation retrospectively an appeal was launched on the grounds that this action was a direct contravention of Article 1 of the Human Rights Act. On 25th July 2011 the appeal was dismissed.
Mr Huitson’s lawyers argued that HMR&C’s actions were disproportionate, violated the principal of legal certainty and imposed an unreasonable burden on their client. They also submitted that Mr Huitson had a legitimate expectation, when he arranged his affairs to reduce his tax liability, that the law would not be changed retrospectively to take away the existing claim for tax relief under the Dual Taxation Agreement. HMR&C confirmed that an impact assessment was not carried out to determine the likely affects of the retrospective legislation and the defence argued that this failure should be taken into account when determining whether fairness had been achieved in this case.
HMR&C’s argument throughout the case has been that the scheme that was operated by Montpelier was intended to take advantage of a Double Taxation Agreement and had no other purpose than the avoidance of UK income tax. Their position with regard to Article 1 of the Human Rights Act, when it comes to deprivation of property, is that the State is entitled to control the user of property in accordance with the general interest or to secure payment of taxes or other contributions or penalties. HMR&C believed that they had always made their position clear; they challenged the scheme because the users were resident in the UK and therefore had a reasonable expectation of being taxed by the State. They made no assurances that they would not attempt to recover all taxes that the scheme had been devised to avoid. They considered that those who had not made provision for payment of additional income tax had done so at their own risk.
The appellate judges dismissed Mr Huitson’s appeal, after deliberation of the facts of the case and the legal opinions offered, and stated that the original judgement was ‘clear and excellent’. In summing up, they stated that the legislation achieves a fair balance between the interests of the general body of taxpayers and the right of the claimant to enjoyment of his possessions, without imposing an unreasonable economic burden on him. They stated that there was a reasonable expectation of taxation of residents in the State on the profits of their trade or profession. Finally, they confirmed that the legislation prevents the Dual Taxation Agreement tax relief provisions from being misused for a purpose different from their originally intended use.
This ruling has confirmed that schemes which are set up with no other purpose than the avoidance of UK income tax will leave users with a massive bill for additional income tax; if you live in the UK and work in the UK you are liable for UK taxes!
For more background information on the BN66 case please visit http://www.contractorumbrella.com/bn66.html.
If you are currently using a business that utilises offshore tax structures, or loan schemes, now is the time to change and minimise your tax liability.
ContractorUmbrella Ltd processes all employee income through PAYE and is fully compliant with all HMR&C legislation, including the AWR. You contact one of our expert advisors on 01206 713 680 or email us at email@example.com.