Contractors lose fight to amend retrospective Section 58(4) legislation

Contractors have been forced to accept defeat in their fight to amend the retrospective tax legislation, Section 58(4) in the Finance Bill, with the potential change thrown out during a House of Commons Finance debate.
 
Although the committee recognised "many subscribers [to the tax avoidance scheme] would have relied on professional advice with a great deal of good faith" and that "at the time it was lawful until the time the retrospective legislation was put in place", there was still "little sympathy with the scheme".
 
Some 1,900 contractors who first participated in the scheme stand to face a combined £220m bill in back taxes, interest and penalties.
 
The clause to amend Section 58(4) would have meant that the tax legislation applied to the scheme’s participants would only have applied after March 2008, when the tax avoidance scheme had closed, leaving affected taxpayers free of any tax liabilities.
 
The Treasury’s decision to support retrospective taxation now leaves all taxpayers at the mercy of the Government, which has the power to apply its retrospective taxation protocol in any “exceptional” circumstances.
 
David Gauke, Exchequer Secretary to the Treasury, had drawn attention to the government’s 2011 Budget document, 'Tackling Tax Avoidance'.
 
Gauke claimed this document set out criteria for the Government to introduce retrospective tax legislation:
 
"Action is sometimes necessary ... to protect the UK tax base. The priorities of reducing the deficit and ensuring a level playing field for all require firm action in tackling avoidance."
 
Dave Chaplin, CEO of ContractorCalculator, expressed his concern about the precedent this legislation appears to have set:
 
"These criteria would appear to place the tax affairs of many, including contractors, in the frame for retrospective action.
 
"This is because there is a history of abuse by a small minority, and large sums of tax involved, in many areas of perfectly legitimate tax planning adopted by taxpayers who believe they are currently acting within the law.
 
"Many of these taxpayers will also have taken professional advice to confirm the legality of their actions.
 
"The decision by the Government not to support this amendment sends a chilling message to all taxpayers that their tax affairs are no longer certain.
 
"Gauke has explained that the Government feels it reasonable in some circumstances to help itself to any taxpayer’s post-taxation income."

Date published 24 Jun 2013 | Last updated 24 Jun 2013