Retrospective tax law 'on the increase'

A leading accountancy group has voiced concern about the apparent increasing use of retrospective action in the UK tax system.

The Chartered Institute of Taxation spoke out after the Treasury's decision last week that tax rules on manufactured dividends would be amended with retrospection.

Speaking on Tuesday, Stephen Timms, financial secretary to the Treasury, announced that the new legislation would be introduced to apply from October 1st, 2007.

John Whiting, tax policy director at the CIOT, said: "We think it [retrospective legislation] damages the key principle of certainty in the tax system that is so important to its reputation and is inherently unfair."

Evidencing fears that tax laws with retrospective effect are becoming more common, the institute pointed to the introduction of Section 58 of the Finance Act 2008, in March of that year.

According to the CIOT, the provision's aim was to close an apparent loophole in the law but, most controversially, it has retrospective effect that goes back 20 years.

"We can understand that at times the government wants to take action to 'confirm the general understanding of the tax system' in the light of questions raised," the institute said.

"However, this needs to be used with great caution: it must not dislodge the principle that the taxpayer is taxed on the wording of the legislation in place at the time of their actions. We are taxed on what legislation says, not what HMRC thinks it says".

Reflecting on the issue, Mr Whiting added: "We need a clear statement as to when retrospection will be used and its boundaries – and parliament needs to consider such boundaries with care."

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