The Chartered Institute of Taxation (CIOT) has spoken out about their concerns regarding the increasing use of retrospective rules within the tax system in the UK. Following on from the High Court ruling a few weeks ago, the Treasury have since confirmed that retrospection would be applied to amend the tax rules on manufactured dividends. Stephen Timms, financial secretary to the Treasury, confirmed last week that this retrospective rule would be applied to October 2007.
Commenting on this development, tax policy director of CIOT, John Whiting told Contractor UK: “We think it [retrospective legislation] damages the key principle of certainty in the tax system that is so important to its reputation and is inherently unfair.”
The Chartered Institute of Taxation further evidenced their concerns by highlighting the section 58 addition to the Finance Act 2008 just two years ago. Of course, it has always been stated that the purpose of that provision was to tighten a tax loophole but it has resulted in a retrospective rule which can now be applied as far back as 1987.
The Institute stated: “We can understand that at times the government wants to take action to ‘confirm the general understanding of the tax system’ in the light of questions raised. However, this needs to be used with great caution: it must not dislodge the principle that the taxpayer is taxed on the wording of the legislation in place at the time of their actions. We are taxed on what legislation says, not what HMRC thinks it says”.
On behalf of CIOT, Mr Whiting concluded: ““We need a clear statement as to when retrospection will be used and its boundaries – and parliament needs to consider such boundaries with care.”