Retrospective legislation is an offence to justice and an enemy to growth

"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."

The article also mentions (as members are by now no doubt aware) that a group of 18 cross-party MPs have signed a letter calling for the Chancellor of the Exchequer to repeal the retrospective element of Section 58. Furthermore, an amendment has also been tabled by Conservative MP; Steve Baker to abolish the retrospective provision of the act.

In a cautionary note to the government, Mr Barber states:

"The temptation to introduce punitive tax changes against whichever group is the enemy of the month can be high - particularly when it affords the opportunity to plug the gap from disappointing growth figures. Such short term raids rarely work as expected. According to answers to a Parliamentary Question, IR35 brought in only 1% of the revenue it was supposed to collect. HMRC believe that a retrospective raid on freelancers and contractors through Section 58 will net them £200 million. The reality is that with a large proportion facing bankruptcy, they will be lucky to gain a fraction of this amount.

If the Government wishes to reduce tax avoidance, it should lower the tax burden and write better and clearer legislation, rather than allowing a practice to be tolerated for almost twenty years before shutting it down retrospectively. If Ministers wish to return to growth, ensure prosperity in challenging times, and prevent Britain’s position in the world economy from being undermined, they should reject quick fixes such as retrospective legislation and instead provide a stable environment which makes it easier and simpler for people to plan their tax affairs. "

The full text of the article can be read on the ConservativeHome blog:




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