The Royal Court of Justice has ruled against the retrospective effect of BN66 being unlawful. Mr Justice Parker presiding disagreed that there was a breach of human rights with regards to the backdating of the Finance Act Section 55. This retrospective rule has only been in effect since 2008 and imposes tax liabilities dating as far back as 1987. This is the first time that the rule has been backed by the courts. Mr Justice Parker also refused an appeal. Delivering his ruling he stated that had the taxpayer acted prudently there would be no cause to challenge the backdating.

He stated: ““At no time did HMRC indicate to affected taxpayers, including the claimant, that they could safely rely upon the arrangements. HMRC consistently maintained that the arrangements did not work, and advised taxpayers to pay on account the income tax which HMRC said was properly due.”

Much of this case rested on the seven year period of inaction by HMRC, however the judge appeared to be of the view that HMRC’s actions were proportionate while taxpayers utilising a BN66 scheme knew the associated risks.

He continued: “It might also have been thought that, with the passage of time and long inaction on the part of HMRC, the likelihood of retrospective measures receded, and it was safer to let sleeping dogs lie. However, if such tactical calculations were made, taxpayers simply ran the risk that at some point parliament might legislate to put the matter beyond doubt, and might well do so…retrospectively”.

Mr Justice Parker concluded: “In so far as taxpayers may have relied upon the route previously travelled by HMRC and the legislature in Padmore, they did so at their own election and risk.”

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