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Barclays: MPs to 'investigate' government's use of retrospective legislation

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MPs are to likely to investigate the use of retrospective legislation to tackle tax avoidance when they examine the Budget proposals, according to the Daily Telegraph. But the government’s decision last week to backdate legislation to counter what it called ‘highly abusive’ avoidance seems unlikely to face any serious challenge.

HMRC guidance on the tax avoidance disclosure regime has stated – since 2006 at least – that a disclosed arrangement ‘may be rendered ineffective by Parliament, possibly with retrospective effect’.

The House of Commons Treasury Committee was ‘concerned about the lack of certainty in the tax system and the problems that creates for investment and job creation’, the paper reported on 3 March.

It quoted Andrew Tyrie, Chairman of the Committee, as saying: ‘Can retrospection be reconciled with the certainty a tax system needs in order to deliver an efficient economy? A simpler, more stable and fairer tax system is less likely to excite demands for retrospection. Any action the government takes on this is likely to be something the committee would want to look at as part of our study into the Budget.’

The government has emphasised that last week’s action to close two ‘highly abusive’ avoidance schemes was justified because of the potential tax loss and the ‘history of previous abuse’. David Gauke, Exchequer Secretary to the Treasury, said this was a ‘wholly exceptional’ case as envisaged by a protocol on unscheduled announcements of changes in tax law.

Tom Cartwright, a Director at the law firm McGrigors, claimed last week that the government’s action was ‘extraordinarily aggressive’. Barclays was using a structure that was ‘reasonably well-known in the market to effect a debt buy-back in a tax-free manner’, he said.

‘Barclays or anyone else who undertook the [buy-back] scheme after 1 December 2011 may have a claim under the Human Rights Act. However, succeeding in such a claim is invariably difficult as retrospective legislation is not automatically contrary to the Human Rights Act.’

Tax specialists at Herbert Smith noted that ‘the risks of retrospective legislation appear to be increased where the government has already legislated (albeit imperfectly) to prevent taxpayers from obtaining the very benefit that a new scheme attempts to obtain’.

The risk was further increased, they said, where ‘the beneficiaries of the scheme are already the focus of political attention and pressure’. In the light of the fact that the bank was a signatory to the Code of Practice on Taxation for Banks, the retrospective nature of the legislation was ‘perhaps not as surprising as it may at first appear’.

Barclays said on 28 February, in response to the Treasury’s announcement: ‘Barclays respects the decision of HMRC and the Government to adjust the tax laws and will, of course, comply with the modified law once it is in place. The retrospective change in legislation enacted would not have a material impact on Barclays profits and would not cause Barclays to alter its Preliminary Results which were published on 10 February.’ 


The protocol on unscheduled announcements was set out in the Treasury paper Tackling tax avoidance, published at Budget 2011. Following consultation, the protocol would recognise that ‘changes to tax legislation where the change is effective from a date earlier than the date of announcement will be wholly exceptional’, the Treasury said.

Ministers undertook to observe a number of criteria when considering a change that would take effect before the relevant legislation is enacted: ‘Such changes to tax law will normally only be announced other than at Budget where there would otherwise be a significant risk to the Exchequer; significant new information has emerged to identify the risk or indicate its scale; and changing the law immediately is expected to prevent significant losses to the Exchequer.’

Ministers also undertook to ‘consult after the announcement to establish whether the draft legislation would achieve its objective and change the law as intended’.

However, the Treasury indicated that the Forum of Tax Professionals would monitor how the protocol is applied in practice. David Gauke chairs the Forum. Its other members are listed as:

‘Malcolm Gammie CBE QC – Research Director for the IFS Tax Law Committee; Vincent Oratore CTA (Fellow) – President of the Chartered Institute of Taxation; Chris Sanger – Global Director of Tax Policy at Ernst & Young and Chairman of the Tax Faculty of the ICAEW; Jane McCormick – Head of Corporate Tax at KPMG; Richard Stratton – Partner at Travers Smith; Philip Baker OBE, QC – Grays Inn Tax Chambers and Institute of Advanced Legal Studies, London; Stephen Herring – Senior Tax Partner at BDO LLP; and Francesca Lagerberg – Head of Tax at Grant Thornton.’

In its first annual report, published last December, the Forum said three unscheduled announcements had been made since the final protocol was published. Those announcements were all ‘aligned’ with the protocol but ‘there was no quantification of the risk to the Exchequer which should have been included in the announcement’.