Categorized | alan's blog, tax avoidance

A bad day for some…

A bad day for some…

Big news of the day is about a court case that concerns a piece of the 2008 budget referred to as BN66.

This is one of those things that came out in the supporting documentation that tells the actual truth about the contents of the 2008 budget as opposed to what the chancellor said in the House.

To put it very simply, the use of an Isle of Man-based taxation avoidance scheme used by quite a few contractors was closed off. The scheme relied on an interpretation of an earlier piece of legislation that, in effect, exempted you from some UK-based taxation. Closing it off is fair enough, the Government can make any laws it likes after all.

However the killer in this case was that the effect of the legislation was made retrospective back to the original act, basically by arguing that this was what was originally meant to be the case and we’re just clarifying the wording. Since tax investigations that don’t involve fraud or evasion can only go back 6 years, this meant in effect that all those scheme users’ income from 2001 onwards was in scope. Clearly this is a little unfair, to put it mildly.

As a result a group of them have been preparing a case for a Judicial Review of the retrospective aspect of the change. The judgement has just been handed down today and found in favour of HMRC, hence the retrospection stands.

Clearly this is awful news for those involved, since they are looking at tax bills into six figures. This is not the kind of money many of us can find lying around and will cause some people major problems if HMRC press for the full settlement

Furthermore, it’s also not that good news for everyone else. HMRC already have form for imaginative re-interpretation of the law; the whole point of the Arctic case – which involved splitting out company income between husband and wife shareholdings – was that the rule they tried to apply was never meant to apply in that situation. Clearly, if this ruling means that HMRC can change the rules retrospectively by “clarifying” already understood rules, then an already uncertain tax landscape just got a whole lot more wobbly.

The BN66 group will be looking at the possible next steps so this isn’t yet the final position. However, it’s not been a good day for any of us.

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