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Now fear is growing that new legislation could will mean that legal schemes which are later deemed illegal by the Revenue could lead to a retrospective tax bill, dating back to December 2, 2004 - the date of the Pre Budget Report.
The measure was trailed in the Pre Budget Report in the 'supplementary releases' on the Inland Revenue website at the end of a technical note, in a statement from Dawn Primarolo, that the Government may in future announce retrospective measures to ensure employers and employees pay the "proper" amount of tax and NICs.
Initially, the move seemed to be targeted at huge bonuses paid to City workers. But the Treasury seems to be adopting a wider approach covering workers and employers with Paymaster General, Dawn Primarolo, citing that people should pay 'the proper amount of tax'..
Accountants have questioned who would define 'proper' and expressed concern at the shift from the principle that someone is taxed on what the law says at the time, not what is decided later.
One leading accountant has decribed this as 'the most fundamental tax shift since the 1600s' - in a move which would do away with centuries of legal precedent going back to the Magna Carta.
This measure follows a requirement in last year's Budget to disclose to the Revenue details of so-called tax avoidance schemes.
Treasury Committee - 'raises issues'
The Treasury Select Committee has also raised its collective eyebrows at the retrospective aspect of the latest proposal saying that it 'raises significant issues'. The Committee has recognised that some experts consider that this approach could lead to challenge in the court and has called on the Revenue to publish a paper setting out their thinking on the principles.
In a recent report the Treasury Committee said: "We note and welcome the evidence that the new tax avoidance disclosure regime put in place at the time of the 2004 Budget is working well and is having an effect both in terms of allowing the revenue departments to close off avoidance schemes earlier than was the case previously and in having a measure of disincentive effect on the tax avoidance industry.
"Without wishing to challenge the legitimate right of individuals and businesses to manage their tax affairs in the most effective way for their purposes, we regard it as an equally legitimate objective for the government to seek to protect the tax revenue against inappropriate avoidance schemes.
"The Paymaster General's announcement that future legislation to outlaw income/NIC avoidance schemes not yet identified will be backdated to 2 December 2004 raises significant issues.
"We support the Government's determination to tackle unreasonable tax avoidance schemes, which can have the effect of penalising the general public, but we recognise that some experts have indicated that their approach could lead to challenge in the courts.
"This can only finally be tested as and when the Government introduces any legislation on the basis of the announcement. It would be helpful if, at this stage, and without jeopardising their position, the Inland Revenue were to publish a paper setting out their thinking on the principles which will guide future decisions as to whether a scheme is reckoned to be within or outside the terms of the announcement."
See also:
PRB (7): Clampdown on 'avoidance' - Shout99, December 2004
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Susie Hughes © Shout99.com 2005
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