At the Royal Court of Justice last month, the retrospective element of BN66 was last judged as lawful. The rule was being tested with regards to whether or not it breached an individual’s human rights.
However, Mr Justice Parker, who presided over the case, disagreed. The retrospective rule of the Finance Act came into effect in 2008. This gives HMRC the power to impose tax liabilities from 1987 onwards. This case represents the first time that a retrospective rule has been cleared by the courts. In fact, Mr Justice Parker also ruled against an appeal. Stating the reasons for his decision, he placed the responsibility with the taxpayer.
This case centred on the seven-year window during which HMRC did not pursue tax from the individual meaning that their actions to impose liability were disproportionate. However, Mr Justice Parker claimed that any taxpayer using a BN66 scheme is fully aware of the associated risks.
In conclusion, Mr Justice Parker said: “In so far as taxpayers may have relied upon the route previously travelled by HMRC and the legislature in Padmore, they did so at their own election and risk.”
As a contractor, you essentially have three ‘safe’ ways of structuring your pay. You can either work PAYE at the agency or client, run your own limited company or work through an umbrella company. Your take home pay will be directly linked to your IR35 status, which means that for the vast majority of ‘inside IR35’ contractors (i.e the individuals that cannot reasonably prove that they’re working on a self employed basis), an umbrella company will deliver the highest net take home pay.
Scott Illingworth is Director of Service Delivery at Crystal Umbrella.
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