Letter to the Chair of the Committee from
Anthony Mehigan, NT Advisers LLP, dated July 2009
Legislative scrutiny: Finance Bill
I am writing to you on behalf of NT Advisors,
following the recent publication of the Joint Committee on Human
Rights twentieth report Legislative Scrutiny: Finance Bill;
Government Response to the Committee's Sixteenth Report of Session
2008-09.
We very much welcome the Committee's recognition
that retrospective legislation needs to be applied very carefully
to ensure that it is compliant with human rights legislation.
We particularly welcome the recommendation that the Government
should in the future provide the Committee with a memorandum identifying
any provisions in the Finance Bill which have retrospective effect,
together with an assessment of the impact of the retrospective
provision and a detailed explanation of the justification for
the retrospectivity. We very much hope of course that the Government
will accept this recommendation.
We are also grateful to the Committee for specifically
looking into Clause 67 of the Finance Bill. However, we note
that the Committee fully accepted the Government's position on
Clause 67, which stated that the 1 April schemes were in
fact very similar to the 12 January schemes. The Committee
held the view that in those circumstances the retrospective nature
of Clause 67 was justified.
In its assessment of compatibility the Committee
concluded that the substantial loss to the Exchequer along with
the lack of any evidence of personal hardship to those individuals
involved in the scheme justified the retrospective measure. This
argument reiterates the comments of the Rt Hon Stephen Timms MP,
Financial Secretary to the Treasury, made in Public Bill Committee.
NT Advisors is particularly concerned about
the Government's reason for introducing Clause 67 retrospectively.
None of those concerns were effectively dealt with by the Minister
when the Clause was debate in Public Bill Committee.
The 1 April statement applied to those
schemes operating under S11 of the Income Tax (Earnings and
Pensions) Act 2003 (ITEPA). The 12 January statement
referred to schemes operating under sections 346, 348 or
555 of the ITEPA 2003. Therefore the schemes closed down
by the 1 April statement are in fact substantially different
in nature to the schemes closed down by the 12 January statement.
The 12 January statement referred to schemes
which "prevent deductions being allowed where liabilities
relating to an employment are incurred by employees and former
employees with a main purpose of avoiding tax". The 1 April
statement extended this to include all employment loss. If the
intention was to close down schemes that operated under s11 of
the ITEPA, the Government would have done so in its January statement.
Also, the Government has not provided an adequate explanation
as to why S11 schemes were left out of the original statement.
It would appear that the only reason for introducing
the measure retrospectively is that an error was made by HM Treasury
in making the scope of the 12 January statement too narrow.
It was in fact the actions of NT Advisors who brought the Government's
attention to the scheme, by acting in accordance with the rules
laid down in the Disclosure of Tax Avoidance Schemes (DOTAS).
The great majority of the 600 individuals
who will be affected by the retrospectivity of Clause 67, are
full-time UK residents (even where they may have a non-UK domicile)
and therefore invest and spend their incomes in the UK. A large
majority are active entrepreneurs who will be looking to re-invest
at least a large part of these additional funds into their own
or other business ventures.
Given the wider effects of retrospective legislation
on tax planning and certainty, as well as the image of the UK
as a good country to do business, it would be oversimplifying
to say that the interests of the general public and the loss to
the Treasury of £200 million outweighs the interests
of the 600 individuals.
We feel that an important area which the Committee's
report did not pick up on is the fact that, to date, it has been
accepted practice only to apply retrospective tax legislation
in an area where HMRC has notified it will do so. in future. The
only example of this is remuneration planning, where in December
2004, the then Paymaster General, Dawn Primarolo MP, announced
that it would in future make amendments retrospectively when amending
remuneration planning. A number of such retrospective amendments
have been brought in since 2004 and each time such a change
was made, it was confirmed that it would only be in the very narrow
area of remuneration planning. These amendments have been widely
accepted by the industry. However, Clause 67 is widening
the scope of this "Primarolo Principle" which sets a
dangerous precedent.
It is very worrying indeed that Lord Myners,
the Financial Services Secretary, during the Second Reading debate
of the Finance Bill in the House of Lords on 20 July, stated
that retrospective measures would continue to be applied to what
HMRC considered to be "the most heinous forms of tax avoidance".
In doing so, he has extended the scope for HMRC introducing retrospective
legislation across the whole spectrum of tax planning. I would
therefore be grateful to hear what the Committee's views are on
this.
We would therefore be keen to discuss the outcome
of the report with you as we strongly feel that some of the arguments
which were used by the Financial Secretary to the Treasury were
factually wrong.
If you were willing to meet, than perhaps you
could let me know and we can schedule a mutually convenient time
and date.
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