Chancellor urged to redress unfair BN66
In a letter to George Osborne, eighteen MPs from across five political parties have urged the Chancellor to reverse the retrospective application of Section 58 (4) Finance Act 2008 aka BN66.
Budget Note 66 (BN66) was announced in March 2008 by the then Labour government to stop the abuse of double taxation agreements. BN66 sought to “clarify” and “put beyond doubt” legislation that had been in place since 1987. The true effects of S.58 were however to render any use of avoidance schemes that involved double taxation treaty planning arrangements as illegal regardless of the time they were entered into.
As a consequence of HMRC's retrospective use of S.58 around 2,000 contractors are staring down the barrel after being presented with back dated tax demands which include interest and penalties. Many could be forced into bankruptcy because they simply cannot afford to pay the sizeable and unexpected demands.
The full cross- party letter to the Chancellor is reproduced below.
Dear George,
We are writing to you to highlight serious concerns which have been brought to our attention by a large number of our constituents regarding the use of retrospective legislation, and in particular Section 58(4) of the Finance Act 2008, which made unannounced retrospective changes to the law regarding tax planning schemes that made use of double taxation agreements.
As you will know, the changes introduced by Section 58 were applied retrospectively and treated as “having always been in effect” – as a result many people now face severe financial hardship and bankruptcy as a result of back tax demands going back many years, despite entering into the tax arrangements with a legitimate expectation that they would be subject to the law as it stood at the time.
We recently attended a presentation by the No To Retro Tax campaign group, which represents those affected by the unannounced and retrospective changes to the tax system brought in by Section 58. The group presented the findings of their impact assessment which suggest that of the several thousand people caught up in this retrospective legislation, 67% are unable to pay demands for back taxes; 45% face losing their homes; and 30% will go bankrupt.
We understand that in previous correspondence about this matter you have sought to justify the use of unannounced retrospective legislation by highlighting that the tax arrangements were aggressive and allowed users to avoid paying a large proportion of income tax. While we would not wish to endorse tax avoidance and believe everyone must pay their fair share, we do believe that retrospective changes to the law are against natural justice and people should be judged under the law as it stood at the time.
You have also suggested that Section 58 merely “clarified existing law retrospectively” – again, we have been shown evidence by the NTRT campaign which suggests that there was debate about the efficacy of the arrangements, that arguments had been advanced that they were legitimate, and that Parliament knew about the loopholes in question as far back as 1987 and allowed them to continue. You will remember your own comments on this matter when you said that: “the Government has been aware of this loophole for some years yet made no move to close it… This served to create a legitimate expectation amongst taxpayers that the practice would be tolerated.”
We would therefore urge you to consider what steps can be taken to mitigate the serious impact of this unannounced retrospective legislation on those involved and to consider using this year’s budget to amend the retrospective nature of Section 58 so that the changes it introduced would only take effect from the moment they were announced – bringing it into line with established protocols for closing down tax loopholes.
We look forward to receiving a substantive response to the concerns raised in this letter, as well as an update on the planned next steps.
Yours ever,
- Jeremy LeFroy MP (Conservative)
- Graeme Morrice MP (Labour)
- Sir Robert Smith MP (Liberal Democrat)
- Steve Baker MP (Conservative)
- Nigel Mills MP (Conservative)
- Peter Bone MP (Conservative)
- Zac Goldsmith MP (Conservative)
- Michael Connarty MP (Liberal Democrat)
- Philip Hollobone MP (Conservative)
- Caroline Lucas MP (Green)
- Dame Anne Begg MP (Labour)
- Tom Clarke MP (Labour)
- Jeffrey Donaldson MP (Democratic Unionist)
- Ian Murray MP (Conservative)
- Teresa Pearce MP (Labour)
- Jim Shannon MP (Democratic Unionist)
- Anne Main MP (Conservative)
- David Nuttall MP (Conservative)
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