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Thousands of IT contractors in line for HMRC tax repayment

HMRC tax repayment

​Approximately 2,000 IT contractors in the UK are set to benefit from a tax repayment from HM Revenue and Customs (HMRC).

This is according to a recent report published in the Financial Times, which revealed that individuals who had taken advantage of offshore tax schemes in the early 2000s were entitled to a repayment due to a loophole.

While this is good news for contractors and limited companies, it does leave HMRC somewhat red-faced.

The government tax body has been forced to admit that it should never have taken this money from the workers involved in the dispute in the first place. As a result, it is set to pay out tens of thousands of pounds.

So, what exactly was the problem and why has HMRC been forced to back down?

The dispute regarded accelerated payment notices (APNs) that were presented to individuals utilising offshore tax schemes in the Isle of Man more than ten years ago.

HMRC issued these notices to around 2,000 IT contractors who were filing their taxes overseas to limit the amount of income tax they were required to pay, asking them to pay a certain sum of tax regardless.

Once served, APNs need to be paid within 90 days, with HMRC handing out more than 32,000 in the past two years alone.
Montpelier Tax Consultants has recently brought the early-2000s offshore issue to public attention, forcing HMRC to comment on its actions, as it was against the rules for the organisation to demand a certain level of income tax to be paid by contractors using the schemes at the time.

HMRC has since backed down and admitted that it may have been wrong on the matter, pledging to repay all of the money that is owed to the affected IT contractors.

It is believed that up to 16,000 contractors operating in a range of sectors - including IT, oil and gas, and banking - were filing their taxes through offshore schemes in the 2000s, suggesting that the actual number of individuals who are owed money could in fact be much higher.

HMRC commented in a statement: "We act quickly to correct the position once we become aware that things are not correct. If an APN is withdrawn, that doesn't mean there is no tax to pay. The underlying dispute remains until it is settled or litigated."

Contractors have been at the centre of high-profile HMRC campaigns in recent months, as the tax body aims to collect all of the tax it believes it is owed from self-employed individuals.

However, as the organisation makes the move to digital, requiring all self-assessment tax returns and other pieces of paperwork to be completed online, it hopes that there will be fewer disputes and a greater level of clarity over who is owed what in the future.