No To Retrospective Taxation

"Retrospective legislation is an offence to justice and an enemy to growth" - that is the headline that appeared on the ConservativeHome website today in an article written by Rob Barber.

In the article, Mr Barber states the very reason a great many of us entered into a tax planning scheme in the first place:

"In 2000, the then Government introduced IR35 to combat what it saw as “disguised employment” by freelancers, contractors and consultants. However, IR35 resulted in far higher tax demands being placed on consultants who fell within its scope – more than would have been the case had they been in regular employment. It also created great uncertainty about when the provisions would apply, leaving contractors fearing future demands and being pursued for unexpected liabilities. IR35 is now recognised as bad legislation, and the Government has pledged to review it – although this has not taken place and the term “disguised employment” has simply been redefined. leaving contractors in exactly the same position of uncertainty."

He then goes on to state our case very succinctly:

"To obtain greater certainty about their tax affairs, many consultants instead used a tax planning product that was widely marketed by tax consultancies and promoters, and which utilised double taxation agreements and trading trusts to create greater certainty. It also had the added effect of substantially reducing tax liabilities, and hence could be considered tax avoidance and a tax loophole. Nonetheless, these arrangements had been debated by Parliament as far back as in 1987, had been reviewed by HMRC and were included in their tax manual. HMRC accepted money claims under the arrangements, encouraging its dissemination and creating legitimate expectation that the practice was tolerated. Between 2000 and 2008, several thousand IT consultants, contractors and freelancers entered into the arrangements to gain more certainty about their tax position."

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Eighteen MPs from five political parties have signed a letter to George Osborne urging him to use this year’s Finance Bill to amend a retrospective change to tax law, which threatens to force hundreds of IT contractors into bankruptcy.

Members of Parliament from the Conservatives, Labour, the Liberal Democrats, the Greens and the Democratic Unionists say they have wirtten to the chancellor asking him to repeal the backdated element in Section 58(4) of the Finance Act 2008.

Coordinated by Tory MP Jeremy Lefroy, the letter explains that Section 58 – known as BN66 after the Budget Note it was issued upon – made changes to the law regarding double-taxation treaty tax-planning arrangements, which were used by the contractor community.

Relied on by such freelance professionals to manage their liabilities following the introduction of IR35, the arrangements were debated and approved by parliament in 1987 and were even included in HM Revenue & Customs’ own tax manual.

Although HMRC accepted claims for relief under the arrangements (while challenging some others), the Labour government claimed in 2008 that they constituted “abusive tax avoidance” and shut them down without warning, both prospectively and retrospectively.

“Retrospective legislation is against the principles of a democratic society,” Alistair Renshaw, chairman of campaign group No To Retro Tax, which is supporting the MPs’ call for repeal, argued yesterday.

“There is [also] real concern about how HMRC acted in persuading ministers to make such sweeping and unannounced retrospective changes, going back so many years, to a practice that parliament had said was legal and HMRC had in the past approved and said could not be challenged.”

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