The certainty in the UK tax system has been thrown into doubt by the Treasury’s use of retrospective action according to the Chartered Institute of Taxation.
They are concerned about amendments to the taxation rules regarding manufactured dividends, which were announced by the Treasury’s financial secretary Stephen Timms last week. These amendments have been applied retrospectively back to 1 October 2007.
John Whiting, director of tax policy at the CIOT understands that the government needs to ‘confirm the general understanding of the tax system’ but warns that they should proceed with extreme caution.
He believes that the government should issue a clear statement defining when retrospective action will be used and what boundaries will be applied so as not to ‘dislodge the principle that the taxpayer is taxed on the wording of the legislation in place at the time of their actions.’ Many leading contractor accountants have already voiced their concern over this issue.
The latest amendment has been introduced to close a loophole that allowed manufactured payments from sale and repurchase transactions to be exempt from corporation tax even though they were taken into account in calculating accounting profits.
Previously HMRC has closed loopholes with immediate effect but to also apply the new rule retrospectively seems to be a sign that the government department is taking an ever more aggressive stance towards tax evasion.
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