Dawn Primarolo, the unlikely anti-tax avoidance hero of the day

Posted on

Dawn Primarolo was the unlikely hero of yesterday's hearing before the House of Lords.

The subject of a GAAR or General Anti-Avoidance Principle as I'd prefer came up, partly in its own right and partly in the context of the need to tackle the abuse going on in Employee Benefit Trusts (or Tax Cheating Arrangements, as I was happy to call them).

I pointed out that one of the best days in recent taxation history was that in December 2004 when Dawn Primarolo stood in the Commons and said whatever attempts were made thereafter to avoid the obligation to apply tax and national insurance to payment of remuneration arising from an employment they would be blocked by legislation and that legislation would be back-dated to December 2004.

At the time the tax profession howled in protest. This was unreasonable they said. This was retrospective legislation they cried. And this was an abuse of the right a person had to abuse tax law they implied.

But yesterday John Whiting agreed with me: Primarolo's statement may have appeared to be retrospective legislation at the time, but it straightforwardly worked where nothing else had. In the face of knowing that any attempt to abuse the law would be stopped, retrospectively, people stopped trying to abuse PAYE regulations. And NIC abuse died out for some time.

Until that is Employee Benefit Trusts came along.

And it was John Whiting who wondered out loud why a) the Primarolo principle was not being applied to Employee Benefit Trusts because there seems no reason why it should not be b) it had seemed to be forgotten, which he thought an error c) (and I think this came out of our exchanges) it was not now influencing the current debate on the GAAR because the evidence was emphatic - it works.

The moral: principles based attacks on tax abuse work.

It's an important lesson to note.