MPs' letter to George Osborne: Repeal Section 58

Eighteen MPs from five political parties have sent a letter to George Osborne calling on him to use this year’s Finance Bill to repeal the retrospective element of Section 58 in Finance Act 2008 which, for imposing backdated tax liabilities, threatens many IT contractors with bankruptcy. A copy of the letter, obtained exclusively by ContractorUK, follows, alongside the names of its 18 signatories.

Dear George,

We are writing to you to highlight serious concerns which have been brought to our attention by a large number of our constituents regarding the use of retrospective legislation, and in particular Section 58(4) of the Finance Act 2008, which made unannounced retrospective changes to the law regarding tax planning schemes that made use of double taxation agreements.

As you will know, the changes introduced by Section 58 were applied retrospectively and treated as “having always been in effect” – as a result many people now face severe financial hardship and bankruptcy as a result of back tax demands going back many years, despite entering into the tax arrangements with a legitimate expectation that they would be subject to the law as it stood at the time.

We recently attended a presentation by the No To Retro Tax campaign group, which represents those affected by the unannounced and retrospective changes to the tax system brought in by Section 58. The group presented the findings of their impact assessment which suggest that of the several thousand people caught up in this retrospective legislation, 67% are unable to pay demands for back taxes; 45% face losing their homes; and 30% will go bankrupt.

We understand that in previous correspondence about this matter you have sought to justify the use of unannounced retrospective legislation by highlighting that the tax arrangements were aggressive and allowed users to avoid paying a large proportion of income tax. While we would not wish to endorse tax avoidance and believe everyone must pay their fair share, we do believe that retrospective changes to the law are against natural justice and people should be judged under the law as it stood at the time.

You have also suggested that Section 58 merely “clarified existing law retrospectively” – again, we have been shown evidence by the NTRT campaign which suggests that there was debate about the efficacy of the arrangements, that arguments had been advanced that they were legitimate, and that Parliament knew about the loopholes in question as far back as 1987 and allowed them to continue. You will remember your own comments on this matter when you said that: “the Government has been aware of this loophole for some years yet made no move to close it… This served to create a legitimate expectation amongst taxpayers that the practice would be tolerated.”

We would therefore urge you to consider what steps can be taken to mitigate the serious impact of this unannounced retrospective legislation on those involved and to consider using this year’s budget to amend the retrospective nature of Section 58 so that the changes it introduced would only take effect from the moment they were announced – bringing it into line with established protocols for closing down tax loopholes.

We look forward to receiving a substantive response to the concerns raised in this letter, as well as an update on the planned next steps.

Yours ever,