Alistair Renshaw is a chartered surveyor and chairman of the 'No to Retro Tax' campaign, which campaigns against the use of retrospective legislation in the UK.
The American statesman and senator from Massachusetts Daniel Webster once wrote that an unlimited power to impose tax involves, necessarily, the power to destroy. There has been much written in the past few days about tax avoidance and the need for everyone to pay their fair share in these times of austerity. However, in the wake of the budget, any sensible discussion about the level of tax burden the country can stand is being drowned out by politicians playing to the gallery and demanding harsher and more draconian punishments against that perpetual class enemy, “the rich”.
Many people arrange their individual or business tax affairs in as efficient a manner as possible within the confines of the law. This is different from tax evasion, which is a deliberate and criminal attempt to avoid paying what is owed. There are strict statutory rules which dictate that, once a structure is implemented to minimise tax liabilities, the scheme is notified to HMRC under the Disclosure of Tax Avoidance Schemes rules, so they can monitor its use and consider whether it is line with the intentions of Parliament. In the event of a disagreement between HMRC and the affected taxpayer over the interpretation of tax legislation, there is a well established route to resolving disputes through the tax courts, with Parliament free to legislate if the Government feels loopholes need to be closed down.
The most important feature of any tax system is legal certainty. It is generally accepted that retrospective tax changes – where people incur demands for additional liabilities and are fined for arranging their affairs in a manner that was entirely legal at the time – should only be used in the most exceptional circumstances, and even then, only when clear warning has been given in advance under the Rees rules. Retrospection damages confidence in the rule of law, which is an essential component of a competitive economy in a globalised world, and by undermining the principles of stability and uncertainty, reduces the attractiveness of the UK as a place to invest and do business.