MPs have asked the chancellor to repeal BN66, which threatens to land some contractors with hefty tax bills.

Wednesday 1 May 2013

A group of MPs have written to the chancellor asking him to repeal BN66, a retrospective change to tax law which could leave some contractors facing large tax bills.

Eighteen members of five different parties signed the letter to George Osborne obtained by Contractor UK, which encourages him to use this year’s finance bill to repeal the rule brought in under the Finance Act of 2008.

Section 58(4) of the Finance Act is known as BN66 after the Budget Note upon which it was issued. It made changes to the law regarding tax planning schemes that used double taxation agreements, but the law states that these rules must be treated as though they had always been in effect. As a result, taxpayers who had made use of these schemes found themselves inadvertently owing large sums to the taxman, accumulated over several years in some cases.

Double taxation agreements were involved in planning schemes used by hundreds of contractors, many of whom have been faced with hefty bills payable to HMRC.

As the MPs explain in their letter to Mr Osborne, a number of contractors have since found themselves facing “severe financial hardship and bankruptcy” as they have struggled to pay off their tax debts.

According to Contractor UK, freelancers and self-employed professionals often made use of double taxation agreements after IR35 legislation first came into effect. They were debated and approved in Parliament and even at one point appeared in the former Inland Revenue’s tax manual - but in 2008 Labour decided that the schemes constituted an “abusive” form of tax avoidance.

The letter cites figures presented by the No to Retro Tax campaign group, which conducted its own impact assessment and found that two-thirds of those affected will not be able to pay back their tax bill. A total of 45 per cent face losing their homes thanks to their financial struggles, and three out of ten will even go bankrupt.

No to Retro Tax also argues that the government had been aware since at least 1987 that the loopholes existed, but had chosen not to introduce any measures to close it - a fact that the chancellor himself has confirmed in the past.

The MPs say that applying the law retrospectively is “against natural justice” - taxpayers should be judged under the law as it stands at the point when they act.

To that end, the politicians are asking the chancellor to alter the law so that it only applies from the day when it was first announced in 2008, as well as to look into some form of redress for taxpayers who have been badly affected by the legislation.

Elected representatives from the Lib Dems, Conservatives, Labour, Green and Democratic Unionist parties came together to sign the joint letter.

Alistair Renshaw, chairman of No to Retro Tax, says that applying legislation retrospectively is essentially anti-democratic.

“There is [also] real concern about how HMRC acted in persuading ministers to make such sweeping and unannounced retrospective changes,” says Mr Renshaw, “to a practice that parliament had said was legal and HMRC had in the past approved and said could not be challenged.”

By Victoria McDonnell

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