Call to ease retrospective tax fears

HM Revenue & Customs should tax people on the wording of legislation in place at the time of their actions, or take extreme care if it seeks retrospective changes.

Issuing this appeal, the Chartered Institute of Taxation said retrospective action damages confidence in the tax system and could therefore harm the economy.

Although still relatively rare, the introduction of tax rules with retrospective effect is a growing trend , the CIOT said, which the government should set boundaries for.

“We think it is important for the government to state clearly when, if at all, it will see retrospective action as valid,” the institute said in a paper handed to the coalition.

“It must be very sparingly used: retrospection is damaging to confidence in the tax system as it undermines the principles of stability and certainty.”

The state should adopt a “general principle of opposition” to retrospection, other than on the grounds of necessity, not desirability, and in “very limited circumstances.”

So while the government should not forbid it in all circumstances, retrospection is something “that should be used with extreme care and justified at length.”

“The government should make a clear statement of when, if at all, it sees retrospection as appropriate,” the CIOT said.

“The institute believes that this statement should be part of a new protocol on announcing legislative changes taking immediate effect outside fiscal events.”

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