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  • Budget 2020: A tale of two viruses?

    11 March 2020

    Andy Wood

    The first virus referred to in the title is, of course, Coronavirus or Covid-19. Much cash was promised to heal the economic consequences of this virus.


    The second virus referred to in the title is retrospective tax legislation.


    The Government appears to be something of a ‘super-spreader’ of late – with three new cases in the Budget papers alone.

    Automatic Penalties


    In October last year, the Revenue decided to issue what, on the face of it, was a rather anodyne note entitled ‘Securing the tax base’.


    There was an explanation of how HMRC had employed various automated processes “for many years” to help with “the assessment and collection of taxes”.  However, it went on, these processes “ha[d] been challenged in the courts on the basis that it is not supported by legislation”.


    However, the truth is that HMRC’s automation of penalties had not only been “challenged” but entirely dismantled as a result of a series of rulings.


    In one case, the judge concluded that HMRC’s automation did not meet with the requirement of the Taxes Management Act (TMA) 1970 for “a flesh and blood human being who was an officer of HMRC to make the penalty assessment”


    It was also held in other cases that a real officer, not a digital surrogate, should have signed the relevant notice.


    Now, this is perhaps a limitation that many taxpayers and tax advisors might have found quite surprising. Indeed, in principle, I have no objection to certain penalties being generated automatically.


    So what’s the problem?


    Well, the problem is that the new legislation (included in the Budget papers) applies prospectively AND retrospectively.


    Furthermore, one can be forgiven for a non-Coronavirus induced coughing fit following HMRC’s announcement that “this is not a new policy” and is merely “clarification”.


    To be honest, I think they’ve been licking Pangolins.


    No, the Courts have determined that HMRC’s understanding of the law is incorrect. The law is that a computer cannot issue notices where an officer is required.


    If HMRC can continually use a retrospective Elastoplast to cover up its errors then that is a scenario which many will rightly find really scary.


    See our detailed article on this issue from last year.


    “Reversing’ Inverclyde Property Renovation LLP (“Inverclyde”)


    What was that about scary Elastoplasts?


    Once again, we see HMRC bringing in retrospective legislative fixes to reverse unpalatable decisions.


    In Inverclyde, HMRC opened enquiries into two LLPs under TMA 1970, s 12A and, subsequently, issued closure notices under TMA 1970, s 28B.


    The appeal concerned whether HMRC had opened and closed the enquiry using the correct provisions.


    The taxpayer asserted that HMRC had no powers to open an enquiry under s12AC and, therefore, there was no valid closure notice under s28B.


    Instead, if it wanted to open an enquiry into the LLPs’ returns, it should have done so under a different provision within the corporation tax equivalent. If it decided to enquire into the tax returns of the members then this should be done under s9A.


    HMRC disagreed. It said that because the LLPs had filed partnership returns then it was perfectly entitled to open its enquiry under s12A.


    So should the enquiry in to the LLPs have been opened under the corporation tax rules?


    Well, the FTT thought that it should have been – and agreed that the authorities for this remained valid law.


    As such, the taxpayers’ appeal was allowed.


    But, lo and behold, today’s Budget includes more legislative gerrymandering. We are told:


    “The Government will legislate prospectively and retrospectively in Finance Bill 2020 to put beyond doubt that LLPs should be treated as general partnerships under income tax rules. This will ensure HMRC can continue to amend LLP member’s tax returns where the LLP operates without a view to a profit. This measure does not create any new or additional obligations or liabilities for taxpayers.

    It clarifies the legislation to ensure the rules work as designed and intended.”


    That last line is simply not correct.


    The new provisions change the law as decided by the Court. Retrospectively so.


    We have an incredibly complex tax code. There is a worrying pattern emerging that in areas of HUGE technical complexity, and lest we forget, where a Court finds in favour of the taxpayer, that the Government will simply allow HMRC to change the law under the auspices of ‘clarification’.


    Entrepreneurs’ Relief goes retro too


    OK, the above examples are very technical and even a professional tax adviser might hope to be struck down with Covid-19 in order to avoid thinking about the technicalities.


    But, at this Budget, we have also seen retrospective changes infecting the more mainstream areas of tax.


    As most people will be aware, the maximum amount of Entrepreneurs’ Relief (“ER”) has been shrunk from £10m to £1m.


    This is effective from today’s date.


    Further, you might be aware that there was a lot of discussion that ER would be revised or even abolished entirely. As such, it is assumed that many clients look to trigger or ‘bank’ ER ahead of a potential change in the rules.


    A potential change in the rules.


    The new measures introduce a contagion that means that anyone who has attempted, prior to today’s date, to bank the relief may remain exposed.


    This may be the case where the taxpayer has used either:


    • A deferred completion contract entered in to before 11 March 2020; or
    • A share exchange in certain circumstances since 6 April 2019


    In other words, negating the planning that individuals, with the wherewithal to do so, have entered in to before the Budget and before changes were announced.


    These are described as Anti-forestalling provisions.


    But, forgive me, it would be fair to describe them as anti-forestalling provisions if the changes to ER were announced as taking effect from 6 April 2020 and these types of measures, preventing a ‘friendly sale’ applied in the interim.


    Instead, these ‘special provisions’ are clear examples of retrospective legislation.


    They increase the tax burden on transactions entered in to before the changes were announced.




    It seems that we must face the new reality that tax retrospective tax legislation is no longer exceptional and is no longer reserved to the arena of the highly technical or aggressive tax planning.


    This is a slippery slope.


    All the handwashing in the world won’t save us from this virus.



    If you have any queries on Budget 2020, or have any tax queries in general, then please get in touch.