Retrospective legislation on double taxation relief not a breach of the human rights of a taxpayer [updated]
4 February 2010
Huitson, R (on the application of) v Revenue and Customs [2010] EWHC 97 (Admin)
Robert Huitson brought a Judicial Review against HM Revenue and Customs in order to challenge under the Human Rights Act 1998 sections 58(4) and (5) of the Finance Act 2008. He contended that these sections of the 2008 Act were incompatible with Article 1 of the First Protocol to the European Convention of Human Rights (“the ECHR”).
The claim related to a tax avoidance scheme based on the Isle of Man, which sought to take advantage of the UK and Isle if Man double taxation arrangement. The Claimant challenged HM Revenue’s attempt to retrospectively claw back taxation under the 2008 Act.
Parker J rejected the Claim. He held at para 77 of the judgment:
Parliament, in my view, was entitled to conclude that a rigorous application of the policy referred to in (vi) above was called for; that legislation was needed to put the effect of the DTA beyond doubt, and to prevent taxpayers resident in the UK from exploiting the relevant DTA in a way that would enable them substantially to reduce income tax that would otherwise be properly paid on income from the exercise of a trade or profession. Parliament was also entitled, having regard to the background that I have set out, to legislate with retrospective effect, particularly in order to ensure a “fair balance” between the interests of the great body of resident taxpayers who paid income tax on their income from a trade or profession in the normal way, and the taxpayers, like the Claimant, who had sought to exploit, by artificial arrangements, the DTA, in plain contravention of the important public policy set out above, and in full knowledge of how Parliament had maintained that public policy after Padmore.
Update – 5 Feb 2010: Analysis by Professor Anne Redston at Kings College, London (from the BBC):
… the Huitson case is nevertheless worrying. Is it the thin end of a very dangerous wedge, allowing HMRC to get its own way without bothering to argue its case in the courts? Or will retrospection be used only exceptionally, most commonly in response to artificial tax planning schemes? What is certain is that backdating legislation is a cheap, quick and certain way of closing a tax loophole, and it may be irresistibly tempting for the government to use the same method again.