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Retrospective taxation should be avoided says the CIoT

Retrospective taxation should be avoided says the CIoT

HMRC should take extreme care when taxing people retrospectively otherwise people lose confidence in our taxation system, says the CIoT.

The Institute commented that although it is still a reasonably unusual; there has been a growing trend for the government to introduce tax rules with retrospective effect. The coalition should clearly state when retrospective action is valid, the Institute pointed out in a paper handed to the government. Retrospection damages confidence in the taxation system as it undermines certainty and stability, which in turn has the knock-on effect of damaging the economy.

The paper states that the fundamental principle that taxpayers are taxed based on the legislative wording in place at time of the Revenue’s actions must remain. The government must make a clear statement of when it sees retrospective action as appropriate. The CIoT thinks this should form part of a new protocol when legislative changes come into effect immediately.

The Institute is not totally opposed to retrospective action but thinks extreme care should be taken if it is to be implemented and there should be lengthy justification in Parliament for such a move. The general presumption should be against retrospection but that principle could lay out some very limited instances where it is considered essential as opposed to desirable.

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