Beware the time-travelling taxman

Wednesday, February 24, 2010 | Posted by: Dave Jennings
Categories: Personal, Protecting your wealth | Tags: tax, tax planning, HMRC, offshore, Dave Jennings, investigation, penalties, banking, legislation, Switzerland, Swiss, Isle of Man, Robert Huitson, law, UBS, human rights, backdated

I am not talking about the HM Revenue & Customs’ (HMRC) version of Doctor Who, as scary as that may sound, now comes something even worse. One of the main gripes we often hear from business’ about our tax system is the lack of certainty. Should HMRC, therefore, be authorised to change the law or its interpretations retrospectively, plunging its victims into a costly time warp and sending them singing for their supper?

It’s astounding, time is fleeting, madness takes its toll.

Last month, a High Court judge decided that backdating demands did not breach human rights law. This was an application for a judicial review brought by an IT contractor, Robert Huitson, and involved a tax-planning arrangement in the Isle of Man. Legislation was enacted in 2008 to stop this legal tax mitigation but it allowed HMRC to recover certain taxes retrospectively.

Mr Huitson now faces a tax bill of more than £100,000 on money he paid into the Isle of Man trust back to 2001. Many others will also be severely affected by the ruling.

Whether you agree with tax planning or not, legislation almost always changed the law from the date it was introduced, or a future set date.

In recent years, however, HMRC has quietly been chipping away at tax planning and, in some cases, brought in new legislation to collect taxes from the past. Time, quite literally, is money.

If I could turn back time, if I could find a way, I’d take back those words.

On 9 February 2010, HMRC issued new draft legislation, which had retrospective effect from 1 October 2007, when the legislation was first issued. This involves a complex financial issue concerning company tax and manufactured payments but is notice, once again, that HMRC is toughening its stance. Further examples of this changing attitude were discussed by Francesca Lagerberg in her post on 2 February.

Should five per cent appear too small, Be thankful I don’t take it all.

With HMRC increasingly using all the powers at its disposal to attack what it perceives to be unacceptable tax avoidance, it is perhaps unsurprising that it is prepared to diminish the certainty that businesses and individuals who comply with the letter of the law have in respect of their tax affairs. Anyone who engages in tax planning may now have to be prepared for the rules to be re-written and, therefore, a tax bill. The newly published HMRC charter refers to HMRC tackling those who ‘bend the rules’. It would seem that this task is made easier if you can actually re-write the rules. 
As ever, anyone who thinks they may have problems should not bury their heads in the sand but deal with any issues head on. 

Image of tardis moneybox: © Louise Docker, 2006

Read more posts by Dave Jennings.