Amend 'devastating' tax rule Section 58, MPs tell Osborne

Eighteen MPs from five political parties have signed a letter to George Osborne urging him to use this year’s Finance Bill to amend a retrospective change to tax law, which threatens to force hundreds of IT contractors into bankruptcy.

Members of Parliament from the Conservatives, Labour, the Liberal Democrats, the Greens and the Democratic Unionists say they have wirtten to the chancellor asking him to repeal the backdated element in Section 58(4) of the Finance Act 2008.

Coordinated by Tory MP Jeremy Lefroy, the letter explains that Section 58 – known as BN66 after the Budget Note it was issued upon – made changes to the law regarding double-taxation treaty tax-planning arrangements, which were used by the contractor community.

Relied on by such freelance professionals to manage their liabilities following the introduction of IR35, the arrangements were debated and approved by parliament in 1987 and were even included in HM Revenue & Customs’ own tax manual.

Although HMRC accepted claims for relief under the arrangements (while challenging some others), the Labour government claimed in 2008 that they constituted “abusive tax avoidance” and shut them down without warning, both prospectively and retrospectively.

Retrospective legislation is against the principles of a democratic society,” Alistair Renshaw, chairman of campaign group No To Retro Tax, which is supporting the MPs’ call for repeal, argued yesterday.

“There is [also] real concern about how HMRC acted in persuading ministers to make such sweeping and unannounced retrospective changes, going back so many years, to a practice that parliament had said was legal and HMRC had in the past approved and said could not be challenged.”

Due to the law being backdated, almost 2,000 contractors and consultants now face tax demands going back many years including penalties and interest – with some liabilities running into the hundreds of thousands of pounds.

An NTRT survey of affected contractors adds that almost three-quarters cannot meet the taxman’s demands from savings and liquid assets; about half (47per cent) will have to sell their homes to meet the liability and almost a third will be forced into bankruptcy.

The group reflected: “Despite doing nothing more than following the law as it stood at the time, thousands of people are facing devastating financial hardship as a result of HMRC making such sweeping and unannounced retrospective changes to tax legislation in this way.”

Pointing to the MPs’ letter, (published separately on ContractorUK today) which calls for Section 58 to only apply from the date it was announced, Mr Renshaw said it was “heartening” that so many members of parliament have set aside their political allegiances to challenge a wrongdoing by officialdom.

“There must be redress for the victims of HMRC’s actions in this case,” he appealed. “I would urge the government to use the opportunity to repeal subsection 4 of Section 58 of the Finance Act 2008.”

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