IT contractors applaud Tory MP's 'no' to retro tax

IT contractors are applauding a Tory MP for forcing a senior Treasury minister to defend backdated tax rule Section 58, which shut down their once-legal tax schemes both prospectively and retrospectively.

Facing off in the House of Commons last week, the Conservative’s Nigel Mills urged Exchequer Secretary David Gauke to ensure that the coalition reviews the approach taken in Section 58 (4) of the Finance Act (2008), introduced by the previous Labour government.

Although Mr Gauke, once a critic of retrospective taxation, rejected the MP’s call, in the shape of ‘probing’ amendment, its supporters say it served its purpose of stimulating a debate on the retrospective aspect of the bill.

As well as prompting the minister to explain the state’s thinking and potentially provide new information, probing amendments are tabled to register a specific point of disagreement, without the intention of the amendment actually being carried.

In fact, Mr Mills said his clause’s aim was simply to “get some comments from the minister on the record about an issue of concern to many,” – namely the retrospective effect of S58 and its impact, including bankruptcy, on IT contractors and thousands of other taxpayers.

“The new clause”, the MP for Amber Valley reflected to the Treasury minister, “asks the government to go back and consider whether what was done was consistent with how the government now think we should use retrospection, if at all.”

The former tax accountant continued: “Was the impact on those individuals fair and reasonable? Would we not be better off changing the law to close the scheme down from the date of the announcement in 2007, then litigating under the old rules to find out whether the scheme was legal? We would normally do things in that way, which would be better and fairer for the taxpayer.”

Appearing unconcerned about whether the consequences of S58 were thought-through, Mr Gauke responded by saying regulatory impact assessments were not run in respect of anti-avoidance measures “where the impact is only upon those avoiding the tax”.

Still, seeming aware that some taxpayers went bankrupt - and many still face bankruptcy, as a result of the retrospective rule, he said: “HMRC is not free to distinguish in principle between an individual who spent the money that should have been paid in tax and one who has not.”

Of the estimated £230m in arrangements caught by S58, the minister was equally unapologetic and unsympathetic to the parties involved, while sounding mindful of the current furore over tax avoidance by the wealthy: “This particular scheme would have resulted in individuals paying income tax at less than 5%,” Mr Gauke denounced.

“Preventing egregious avoidance is not a regulatory burden, none the less, HMRC reviewed the information it held. Most of the people who would have been affected by the measures were in the top 5% of earners, with a substantial proportion receiving an annual income over £100,000. They have been advised by professional tax consultants.”

Also addressing Mr Mills’ concerns, the minister added: “HMRC was quite clear that the legislation would not apply to individuals, other than those seeking to avoid tax through the scheme. Let us be clear, HMRC was challenging the scheme, so its users should have taken reasonable precautions to ensure that they had funds to meet their liabilities.”

Despite the tough-sounding stance (and the amendment’s withdrawal), Section 58’s critics such as No To Retro Tax expect more opposition to its retrospective effect when the bill enters report stage and is opened to all members of the house.  

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