The question of “Can HMRC change tax law and apply it retrospectively?” is one we get alot And, if they can, then it is followed up with “but how is that fair?”. Our answer to the first question is yes they can, they have and we expect them to continue doing so for years to come. As regards the second question, yes, most experts (such as the respected ICAEW) have stated previously that to act in this way “contravenes accepted notions of fairness…imposing tax charges in cases where taxpayers already had legal certainty that none were due..”
So how did it get to this point? Contractors with long memories may recall Budget Note 66 (within Finance Act 2008) which “clarified” the perceived abuse of the Double Taxation Treaty (DTT) legislation. Not only did BN66 make clear how the DTT legislation was intended to operate, it also retrospectively mandated that understanding as if it had been known from the very beginning of the DTT. This created thousands of honest contractors with an instant tax liability – the impact of which is still being debated on contractor forums to this day. BN66 of course gave rise to the infamous Robert Huitson “against my human rights” case which after several twists and turns in court ultimately was decided in favour of HMRC. This pattern would be repeated several years later with the Glasgow Rangers/Murray Holdings case.
Perhaps most famously (in the world of retrospective legislation at least), 2014 saw the introduction of the controversial Accelerated Payment Notices (APNs). For reasons unknown, HMRC opted to hang APNs off the existing DOTAS regime, meaning if you had used a DOTAS scheme and were the subject of an existing tax enquiry, then there was no technical discussion about the scheme, you would simply receive an APN payable within 90 days or penalties would be applied. The kicker was that there was no right of appeal. DOTAS had been introduced back in 2005, so hooking APNs into this gave HMRC the ability to go back up to nine years prior to collect additional tax from contractors. During the public consultation for the APNs it was noted repeatedly this new charge inverted the “the rule of law” (i.e. people were guilty until proven innocent in court) and for which there was no tangible response from the Government. It passed through both the House of Commons and the House of Lords.
That brings us to the current day and another consultation for the proposed “2019 loan charge” which is expected to be enacted later this summer. Under the proposals, contractor loans made as far back as the last millennium (1999) could become taxable. By anyone’s standards, a 20 year retrospective reach is exceptionally penal – but how is that this “sticking-plaster-on-a-broken-leg” approach to legislation continue to pass through the so-called democratic controls? The answer is simple; HMRC’s stated objective is to “maximise revenue”. Note that it is not to make sure the right amount of tax is collected from individuals, but rather to collect as much as possible from as many as possible. It is against this awkward backdrop that many believe the Government and mainstream media collude so to seek to take the moral high ground and try to stigmatise all those who have paid the minimum amount of tax as required by law “avoided tax” to make them as socially unacceptable as benefit cheats or drink drivers. One example of how out of control the angry mob has become is when the terms for tax evaders seeking to settle with HMRC (remember tax evasion is illegal) was actually more favourable than the terms for tax avoiders, which is entirely legal.
So to summarise, these are highly worrying times where certainty is changed to uncertainty. It was commented at the time of the APN consultation that an authority legislating against a certain way of life because it did not approve of it was horribly reminiscent of the dark times of dictators in world history but was also a frightening prospect for the future as to which group might be targeted next.