Judges mull BN66's retrospective effect

Three Court of Appeal Judges will today start considering whether the state breached the human rights of an IT contractor by retrospectively closing a legal loophole that he and thousands of other IT contractors used to minimise their tax bills.

Having heard two days of arguments, Lord Justice Mummery, Lord Justice Morgan and Sir Paul Kennedy must now decide if Section 58 of the Finance Act 2008 is “incompatible” with Article 1 of the European Convention of Human Rights.

The IT contractor, Robert Huitson, claims that it is, due to the legislation’s retrospective effect, that means HMRC can backdate its demands to when tax avoided through the loophole was first payable, rather from when S58 took effect.

As many of the schemes that used the loophole date back to 2001, liability notices from HMRC to the users – such as Huitson – easily stretched into the hundreds of thousands of pounds each.

Like David Elvin QC, Huitson’s lawyer, critics of retrospective taxation point out that affected taxpayers have been unable to meet the Revenue’s demands, resulting in marital and mental health problems, as well as potential bankruptcy.

However in January this year, a judicial review at the High Court found in favour of HMRC, saying that the retrospective effect of BN66 (the Budget notice that detailed S58) was not disproportionate or a breach of human rights.

Though despite the Appeal Court’s schedule affording today as the third and final day of the hearing, affected taxpayers are pessimistic that the judges will provide any certainty before December or January, when their verdict is due.

An IT contractor who used the scheme under dispute reflected: “During the previous hearing in the High Court, the Judge gave very little away.

“I suspect that will also be the case this time and the Judges will reserve any comment for the actual judgment [which is due at a later date].”

Yet as well as Huitson’s challenge to S58, the three judges will also have to consider appeals they received against the regulation by PricewaterhouseCoopers, which shared the hearing with Huitson.

Representing a consortium of property developers, PwC challenged S58 on different grounds, namely that it breaches “free movement of capital” as held under Article 56 of the EU Treaty.

Although the firm’s challenge to the legislation is separate to Huitson’s, his colleagues and supporters are likely to hope that at least one of the appeals is upheld, to nullify hefty tax demands that will otherwise be incoming.

Friday 5th Nov 2010