Section 58. Contractors face financial ruin due to retrospective tax

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Bankruptcy

Retrospective legislation in the budget last year could see many contractors losing their homes or, worse still, forced into bankruptcy.

Section 58, as it was known, targeted a scheme which had been popular with large numbers of contractors since the early days of IR35.

The scheme used a loophole in the double taxation treaty between the UK and Isle of Man to reduce tax and nics.

Controversial

The controversial feature of the legislation was that it closed the loophole retrospectively so anyone who used the scheme now finds themselves having been in breach of the law.

Apparently, HMRC had known about the scheme since it first began operating in 2001 and they started investigating it in 2003.

It has never been clear why they allowed it to continue escalating for 7 years before getting the Government to step in with retrospective legislation.

Section 58

Section 58 attracted widespread criticism from the very start.

The Chartered Institute of Taxation described it as ‘extreme and unjustified’; the Law Society believed it was ‘wrong in principle’; and the Institute of Chartered Accountants in England and Wales warned, ‘it sends out a very damaging signal about the stability of the UK tax system’.

The Conservatives and Liberal Democrats were vehemently opposed to the legislation but the Government used its majority to carry it through.

Several tax planners and accountancy firms have already launched legal actions in the UK and European courts.

These proceedings are expected to be long and protracted, and HMRC will be forced to spend huge sums of public money defending the legislation.

Vested Interest

The tax planning industry has a vested interest in fighting this all the way because, if Section 58 were allowed to stand, it could set a precedent for the Government to retrospectively attack all sorts of other arrangements.

Contractors who used this scheme are now facing massive retrospective tax demands and HMRC are also imposing interest charges for ‘late payment’ which could hike bills by as much as 50%.

For many, insolvency may be the only option.

Worrying

The worry and uncertainty has put a terrible strain on families and relationships over the past year, and it is reported that some marriages have already broken down.

However, a lot of people are now starting to fight back.

Hundreds have taken to writing to their local MPs who in turn have been bringing the matter to the attention of the Treasury.

Immoral

Edward Davey MP (LibDem) described Section 58 as ‘immoral’; John Redwood MP (Con) called it ‘legalised theft’.

A petition has recently been started on the No 10 website to raise further awareness of the issues.

http://petitions.number10.gov.uk/RepealSection58

Payback

One former contractor Nigel Jagger, who is involved in the campaign, commented ‘How would some Cabinet Ministers feel if the rules on MPs expenses were changed retrospectively and they were forced to pay back all the money they had claimed for so called ‘second homes’?

‘Apparently, it is OK for them to use loopholes in the rules but it is not OK for the rest of us. When all is said and done, Section 58 is just another blatant and vindictive attack on contractors.’

Anyone who is affected by Section 58 or wants to find out more about the campaign, can contact Nigel at [email protected]

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