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  • Retro taxes and the Budget – why we should be angry

    3 November 2021

    Background

    Of course, we are told that Budget 2021 was a beige one.

    As usual, we get the same race to produce similarly beige budget commentaries that no doubt peppered your social media feeds for the next few days.

    I described Budget 2020 as the tale of two viruses. Respectively, these were:

    Budget 2020 retro measures – a recap

    The following retro measures were introduced around Budget 2020:

    Automatic tax penalties:

    HMRC’s view and use of automated penalties had not only been “challenged” in the courts but had entirely dismantled as a result of a series of rulings. To make up for their mistaken understanding of the legislation, the law was changed prospectively and retrospectively – albeit under the cloak of “clarification”. It was nothing of the sort.

    Inverclyde decision:

    This ruling considered whether an enquiry in to LLPs should have been opened under the corporation tax rules. The FTT thought that it should have been and agreed with the taxpayers’ view on the law. But, lo and behold, Budget 2021 included more legislative gerrymandering. We were then spun the following yarn:

     “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 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.”

    This last line is completely untrue.

     Entrepreneurs’ Relief ‘anti-forestalling’:

    One of the headlines from Budget 2020 was the change to Entrepreneurs’ Relief. However, so-called ‘anti-forestalling’ rules simply negated any planning that individuals, with the wherewithal to do so, had entered in to before the Budget and before changes were announced.  However, it is not correct to describe them as anti-forestalling provisions. Such rules would apply if the changes to ER has been announced ahead of them taking effect from 6 April 2020 and the new measures had simply prevented a ‘friendly sale’ in the interim. Instead, they increase the tax burden on transactions entered in to before the changes were announced. The definition of retrospective taxes.

    More retrospective law and more mis-labelling.

    Budget 2021 – the retro virus continues to spread

    And they were at it again.

    HMRC’s view of discovery assessments in relation to the High Income Child Benefit Charge was found to be incorrect at both the FTT and UTT in the  Wilkes case.

    HMRC’s response was to change the law at the latest Budget. They describe the changes as follows:

    “The measure confirms the longstanding basis on which HMRC can assess these charges and does not impose any additional liability”

    Clearly, I don’t have to tell you that, again, this is complete bunkum.

    The Courts have told HMRC they are wrong. HMRC’s response is to have the law changed prospectively AND retrospectively.

    Conclusion

     We have an incredibly complex tax code. There is a worrying pattern emerging that in areas of 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’.

    Retrospective legislation being fine in the eyes of the Government and HMRC as long as they can describe it as “clarification” or “anti-forestalling”.

    It seems that we must face the new reality that retrospective tax legislation is no longer exceptional… It is no longer reserved for the highly technical points… or aggressive tax planning…

    … instead, it might apply to anyone who, correctly, takes a different point of view to HMRC even where they are successful in Court.

    It is a slippery slope and we should be outraged.

    If you have any queries about this article then please get in touch.

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    Please provide as much detail as possible in regards to the reason for your enquiry so our tax advisers can prepare and tailor their response to reflect your needs. We will endeavour to - respond / call you back - to discuss your enquiry and you will not be charged for this time.

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