Appeal Court ready to judge BN66 contractors

Thousands of IT contractors will on Monday learn whether the High Court was right to say HM Revenue & Customs could levy millions in income tax on them retrospectively without infringing their human rights.

In January last year, the court found that HMRC’s backdating of Section 58 of the Finance Act (2008), which imposed hefty liabilities on the contractors as far back as 2001, did not breach the Human Rights Act.

Then, Justice Parker headed off an appeal, disappointing Robert Huitson, the IT contractor who challenged the backdating after he, like thousands of other contractors, was caught by S58 for using a tax mitigation scheme.

Based in the Isle of Man, the scheme provider Montpelier responded to the High Court’s backing of the rule, also known as BN66, by approaching the Court of Appeal, where a two-day hearing was granted and held in November.

But the three senior judges presiding also heard an appeal from PricewaterhouseCoopers (PwC), the professional services firm, in what was a further challenge to the backdated legislation, albeit on different grounds to Huitson.

According to the latest CoA hearings list, the “final decisions” for both PwC, which is representing a consortium of property developers, and Huitson, fighting on behalf of IT contractors, will be handed down on Monday July 25th.

Yet the court’s labelling should not be taken generally, as observers tend to believe that the definitive judgement on the legality of BN66 will fall to the Supreme Court, eventually.

That’s because, in the event of a ruling in favour of HMRC, the CoA could give either taxpayer leave to appeal to the Supreme Court or, more likely, PwC or Huitson would have to approach the SC itself, assuming they do not wish to accept defeat.

Paradoxically, the implications of a win for the taxpayer, although more straightforward as Section 58 and tax demands under it would be overturned, also point to the Supreme Court.

The reasoning is that, assuming that it too wishes to fight on, the Revenue could use the same recourse – taking what it regards as an unfavourable ruling to the Supreme Court.    

However both taxpayer and tax authority alike will read their respective judgements closely, as if the Court of Appeal refuses to give permission for a party to appeal a CoA ruling, then that decision cannot be challenged in the Supreme Court.

The judgements, by Lord Justice Mummery, Lord Justice Morgan and Sir Paul Kennedy, will be handed down in the Court of Appeal’s civil court 70 on Monday at 10 a.m.

 

Further reading on the forum: BN66 - Court of Appeal & beyond

Friday 22nd July 2011