Court supports HMRC's retrospective tax move

The High Court has given the green light for taxes to be applied retrospectively in what is seen as a controversial, landmark decision.

The Court supported the Government and HMRC's view that retrospective effect of Budget Note 66 (BN66) is not unlawful.

The case relates to anti-tax avoidance legislation introduced by the Government under the Finance Act 2008 to curb what HMRC described as 'a widely marketed tax avoidance scheme', which involved income being placed in an offshore trust to escape UK tax.

The legislation was introduced with retrospective effect, giving the taxman the right to claim back unpaid tax in trusts even if they were set up many years ago.

The case focused on IT consultant Robert Huitson, who took advantage of a scheme by Montpelier Tax Consultants of the Isle of Man. Mr Huitson's barrister said that this had broken his rights under the Human Rights Act as up until 2008, Mr Huitson's tax affairs had been legal.

However, Mr Justice Parker rejected this pointing out that the Revenue had warned the users of the tax avoidance scheme that it might be challenged, and he said the Government was entitled to change tax law retrospectively to squash artificial arrangements.

The decision means that Mr Huitson faces an overall tax demand in excess of £100,000 relating to money he paid into the trust since 2001.

The retrospective aspect could now affect thousands of tax payers leaving them with tax bills totalling hundreds of millions of pounds.

Chas Roy-Chowdhury, of the Association of Chartered Certified Accountants said: "The case related to a particular trust arrangement but could have implications for similar offshore trust-based schemes. It is quite justified for the Government to attack complex schemes set up to avoid tax but it should not do it retrospectively."

Freelancer trade group, the PCG also expressed concern at HMRC's ability to levy taxes retrospectively. PCG Chairman Chris Bryce said: "Whilst we recognise that the High Court Judge has clearly set out his reasons for upholding the 2008 Finance Act which allowed the Revenue to claim back this tax retrospectively in this particular instance, we share a common concern with all taxpayers that this judgement may be seen as opening the door to retrospection.

"For a seven year period up to 2008 HMRC failed to take any action before the law was changed, despite being well aware of these arrangements. Whilst PCG in no way encourages off-shore tax arrangements we object in the strongest terms to taxpayers being retrospectively penalised for arranging their tax affairs in a way which was entirely legal and proper at the time they undertook to do so.

"I note our concern with retrospective taxation is widely shared. PCG will continue to watch this area very closely. HMRC must not feel this is a green light to retrospectively challenge other, entirely legitimate behaviour."