HMRC Will Make Sure UK Based Technology Contractors Have A Challenging Year

February 5, 2010 | By advisor In Tax |

HMRC Will Make Sure UK Based Technology Contractors Have A Challenging Year

No questions about it, 2010 will go down in history as a year that many IT contractors in the UK will choose to forget. Many contractors are about to be faced with the real possibility of having to pay huge tax bills because they utilised offshore payroll solutions that have been deemed to be illegal. Perhaps most perplexing in this case is that originally these schemes seem to have been fine and it was only amended legislation in 2008 (which has been backdated) which has caused the issue.

The backdating of this legislation has resulted in a group of contractors challenging the legality of the HMRC BN66 decision. Having just been ruled against it has left the futures of many more contractors up in the air. As well as the contractors it will also no doubt have an effect on the offshore companies that have been offering these types of solution and their employees.

Contracting amongst IT professionals is only becoming more popular. Contracting is all about picking your own technical challenges as well as the freedom of being your own boss. More pay, more freedom, a greater chance to push yourself technically? The only thing holding back more IT workers is the payroll issues. It is with this regard that many go in search of suitable payroll solutions.

IT contractors have always been keen to source a solution that pays them the most. Many of these schemes which started out being utlisised by property developers became very popular amongst the techy contracting crowd. To meet this demand many IT contractor payroll solutions have sprung up over the years. One thing is definite though and that is most IT contractors seem to favour the option of having somebody else manage their payroll for them as opposed to forming their own limited company.

The solution that has caused the most recent problem with HMRC was based on an offshore partnership model. An arrangement was made that took advantage of a double taxation treaty between the Isle of Man and the UK. When this flaw was closed these solutions closed down but then HMRC backdated the changes resulting in a lot of contractors who thought they were acting lawfully facing huge tax demands.

One alternative solution was the EBT - Employee Benefit Trust. However these have been investigated heavily by HMRC and many contractors have been left uncertain as to the legality of the EBT. Obviously this will not have been helped by the latest ruling on BN66. Whilst some contractors are more than happy to carry on using Employee Benefit Trust style solutions many more will not use them.

The final result is that IT contractors really do need to double check their chosen payroll solution is compliant. There are still some providers out there who are running fully compliant tax efficient payroll solutions, you just have to know where to find them. The rewards for IT professionals who can utilise the contracting route in a tax efficient way can be enormous.

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