Legislative Scrutiny: Children, Schools and Families Bill; other Bills - Human Rights Joint Committee Contents


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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