The latest IT Contractor News from Contract Eye

HMRC have raided the offices of an Isle of Man based contractor tax scheme, as the Government steps up the pressure on suspected tax avoiders.

According to the BBC, a 60 year old man has been arrested as part of an ongoing investigation into the operations of The Montpelier Group, based in the Isle of Man.

It is believed that the raid formed part of the ongoing clampdown on tax avoidance schemes, many of which are marketed to the IT contractor community. Typically such schemes will promise contractors a net return on contract value which is vastly higher than that realised by a typical limited company contractor.

As a result of the BN66 rules which cleared the way HMRC for to seek taxes retrospectively from users of such schemes, offshore tax vehicles have been firmly in the spotlight.

The pressure is likely to intensify following the Coalition Government's new campaign to clamp down on tax avoidance schemes.

In January 2010, Robert Huitson, an IT contractor who used a Montpelier Group scheme for 7 years, failed in his attempt to fight HMRC's claim to tax him retrospectively, to the tune of nearly £85,000.

The court heard that, for seven years, Huitson had reduced his effective tax rate to a mere 3.5%. There are thought to be over 2,000 other taxpayers who are liable to pay back taxes as a result of using similar schemes.

The judge in the case pointed out that HMRC had warned participants in such offshore schemes that they might be challenged, and that the backdating of tax demands did not breach human rights and was "in the relevant circumstances proportionate".