More Assessments Issued to Contractors

Users of contractor loan schemes hit with more tax bills

HMRC are currently in the process of challenging those arrangements used by contractors that involve the avoidance of tax by entering into a contract of employment with an offshore employer, whilst still providing their services in the UK. Typically, these schemes involve the users receiving the majority of their fees as loans, e.g. from an offshore employee benefit trust, thereby retaining a large proportion of their income free of tax.

As many freelancers are too well aware, HMRC does not agree that these arrangements are legitimate and are of the opinion that they do not succeed in escaping tax for which they were intended. Many individuals have therefore and still are the subject of tax investigations because of their involvement in these schemes.

Over the coming months HMRC will be sending tax assessments to those who used these schemes between 2008 – 2011. Upon receipt a person can either accept the assessment and pay the tax or lodge an appeal against the assessment and seek to reach an agreement with HMRC. Where an appeal is lodged there is a strong likelihood that this will end up before a Tax Tribunal as HMRC consider this to be a part of their crusade to stamp out tax avoidance.

Those freelancers that wish to appeal against an assessment must do so within 30 days of the date of the notice of assessment, stating why they do not agree with HMRC’s decision, although the department do not actually provide any justification for their decision in their letters!

Should a contractor be confident in their appeal and that no further tax should be payable then they can request a postponement of part or all of the tax charged by the assessment. A word of warning however – should the appeal be unsuccessful and that tax found to be payable a surcharge of 5% will be levied on unpaid tax. An additional 5% surcharge is imposed where the tax remains unpaid effectively 7 months after the date of the assessment. This is on top of the interest charged on late paid tax.

For those unfortunate to receive such tax assessments, it is recommended that they seek professional advice asap to discuss their options.