Tag Archives: 2019 charge

Retrospective taxes: Tories are ripping a page straight from the Nazi playbook

It’s not a few aggravated contractors saying it, but Emeritus Professor of Finance and Accounting D.R. Myddelton ….

Via the Institute of Economic Affaires :

“Retrospective taxes are a favourite Nazi practice”

‘There is no difference in principle between taxing people on income that was not legally taxable at the time it arose, or at higher rates than were then in force, and fining, imprisoning, or even executing people for so-called “offences” which were not legally offences at the time they were committed.’

“It is disappointing – to put it mildly – to see a modern British government resort to this obnoxious practice once again.”

The above was written in… 2012, and with regard to retrospection used against a big bank!

We wonder what the Professor would then have to say about APNs, causing irreparable  tens of thousands of average families, let alone on the impending and infamous “2019 charge” 

What is the “2019 charge”?

The so-called “2019 charge” is simply the Treasury’s latest plot to cover up a decade of mismanagement and failure to simplify the tax system, by introducing a wholesale retrospective tax on the self-employed going back 20 years (that’s right).

Originally devised by uber cynic chancellor George Osborne before his fall from grace, it has been quietly endorsed by “Spreadsheet” Phil Hammond, who no doubt saw in it a quick and easy way to improve the bottom line at the expense of a group with relatively little lobbying power: middle-class contractors and their families.

The legislation has been the subject of a “technical consultation” at HMRC, and here is what the highly respected and usually moderate ICAEW (Institute of Chartered Accountants of England and Wales) had to say about this unprecedentedly cynical (even by Tory standards) stunt:

“We are very concerned about the proposals in the consultation document as they contravene
generally accepted notions of fairness and break the constitutional convention against
retrospective legislation, imposing tax charges in cases where taxpayers already had legal
certainty that none were due.
(…)
It is not acceptable for HMRC to create a retrospective tax liability where none currently exists,
especially as HMRC has been aware of loans to employees (referred to in the consultation
document – and adopted here for convenience only – as disguised remuneration (DR)
schemes) since at least 1999.(…)

To introduce legislation which affects transactions which were entered into up to 17 years ago (measured from the current year) where HMRC
has taken no timeous action despite knowledge of the alleged avoidance is likely to lay the proposed legislation open to challenges under the Human Rights Act (…)

HMRC should apply existing legislation rather than giving the impression of
being unable to take action by proposing new legislation duplicating what is already there.

On the international scene these proposals when considered in the light of other recent and
proposed changes to employer taxes and payroll, benefits-in-kind and expenses reporting
processes are making the UK appear a more ‘difficult’ country in which to locate staff, which
may not be desirable in today’s fragile economic climate.“

As you reflect on the above hard words, please ask yourself the following: once the retrospective genie is out of the bottle, what certainty is there left in anything?

The answer is “none“, for the Government can at any moment go back in time, change the rules retrospectively, and present you with an arbitrary bill, with no right of appeal.

NO ONE IS SAFE FROM RETROSPECTIVE LEGISLATION, as it is simply too tempting for the Government to use heavy-handed tactics on a “the end justify the means” basis, rather than resolve the real structural issues and face their own past failures.

It is even more so in situation where a ruling party is in crisis and desperate to cling to power by any means necessary.

This is the very reason why most civilized countries have retrospective legislation forbidden by their constitution.

Sadly, British exceptionalism sets us apart once more  – again, for all the wrong reasons.

How often does your Government lie to you?

From the  Journals of Robert Maas

I’m ashamed to admit it but I voted Conservative at the last general election.  Fortunately most of my neighbours voted Labour so my vote didn’t matter.  But I’m still embarrassed to have done so.  Why?  Because I am becoming increasingly tired of the Conservative government lying to me all the time.  That may be a bit of an exaggeration as I do not have the breadth of knowledge to gauge that in non-tax matters.  But I do know that they do so when it comes to tax.  Lying may be a bit strong too.  It may be that the government believe that once Margaret Thatcher abolished most of the grammar schools in the early 1970s, the standards of State education have plummeted to such an extent that the citizenry cannot cope with the truth.  But I was a grammar school kid.  The State educated me fairly well, so I don’t need protecting from facts.

This article has been prompted by an HMRC Technical note on what they call “disguised remuneration avoidance schemes.  Let me make clear immediately that I have no problem with HMRC tackling tax avoidance schemes.  I am delighted when they do so – albeit that my understanding of what is a tax avoidance scheme seems somewhat different to HMRC’s.  HMRC tell me that “the government’s view is that these schemes don’t work”.  The government is of course entitled to its view.  It is also entitled to bring in legislation to reinforce its view.  But what the document is largely talking about is Employment Benefit Trusts (EBTs).  Whilst I do not wholly discount the possibility of the Cabinet agenda having included a discussion on whether or not EBTs “work”, I am a bit horrified if that is what happened, as there are enough strategic issues for the government to worry about without the collective Ministerial talent being diverted to considering the efficacy of historic tax arrangements.  Of course I fully accept that David Gauke, who has ministerial responsibility for HMRC, may have himself immersed himself in the tax legislation and the detailed documentation of thousands of EBTs and formed his own conclusion that EBTs do not work.  But even if he did so, his considered opinion is just that; it is his view, not that of the government.  As a solicitor, he is capable of doing so, although whether such industry is a sensible use of his ministerial time and the high salary us taxpayers pay for his services is another question.  But I think it is more likely to be HMRC’s view than the government’s.  I would also make the point that, as far as I am aware, although HMRC have won a number of cases before the Courts and Tribunals, none of these have been on the basis that EBTs do not work, but rather than in those particular cases what actually happened did not reflect what the parties had intended.  Accordingly HMRC’s view – or the government’s view if that is in fact the case – is not universally shared.

But it is not simply that view that concerns me

The document goes on to say, “the package of changes announced by the Chancellor at Budget 2016 will ensure that those who have used or continue to use a disguised remuneration tax avoidance scheme will pay tax and NIC on that remuneration as Parliament intended”.

Parliament in fact enacted legislation against disguised remuneration (which includes some payments by EBTs) in 2011, but only in relation to transactions undertaken after 8 December 2010. That suggests that Parliament has no view on disguised remuneration before that date. Yet the Budget announcements are mainly directed at pre 8 December 2010 EBTs, so it is wrong to pretend that those changes are in any way aimed at what Parliament intended.

So, if I am not a fan of EBT loan arrangements, and some, at least, of them, like that in Murray Group, do not avoid tax at all, why should I care if HMRC and/or the government lie to me and the rest of the citizenry in order to seek to persuade us that the Chancellor is right to attack such arrangements entered into pre 2011? Well, apart from the fact that I don’t like being lied to full stop, it is because the lies are to hide the fact that the Chancellor intends to introduce retrospective legislation to tax now (or rather in 2019) the loans that were made by EBTs before 2011. Parliament is normally violently opposed to retrospective legislation. It accordingly seems that by pretending that Parliament was opposed to such loans pre 2011, the Chancellor thinks that they will not realise how clearly retrospective his proposed legislation is. What the Chancellor is really saying is that if a person received a loan from an EBT before 8 December 2010, he should either voluntarily pay tax on the capital amount, even though it is probably not taxable at all under current laws, or he should repay the loan before 5 April 2019, and if he chooses to ignore both of these options and insist on exercising his legal rights under the loan agreement, then Parliament will introduce a new law to tax him in 2019 on money he received in a non-taxable form in 2001 or 2009, or even 1979. That is retrospection with a vengeance!