You may also hear terms such as "BN66" or be referred to Section 58 of the Finance Act 2008. What is that all about?
To be honest, if you're new to contracting it won't affect you right now. But it will help if you know what people are referring to as some people are worried it will become an issue for many contractors in the future.
What is retrospective legislation?
Retrospective legislation refers to any law that is passed that is expected to be treated as if it has always had effect. Therefore, stuff you did legally before the legislation was passed is suddenly classed as illegal, and you could get in trouble for it.
As you would expect, when the government make changes to tax law it only has an effect from the date it is enacted. If they decided that the changes had an effect years before then you would suddenly be hit with overdue tax bills that you could never have planned for, or maybe find that the way your accountant managed your affairs were suddenly classed as illegal, and had been for years.
Such actions would cause chaos and uncertainty as you would never know what tax you would have to pay.
Obviously, there are always schemes available that aim to allow people to evade tax using loopholes. However, when these are found it is standard procedure to introduce for HMRC to make an announcement that it intends to do close the scheme down and do this prospectively (i.e. from the date of the announcement).
These principles of retrospective legislation are why Budget Note 66 (BN66) has concerned many people. BN66 seeked to 'clarify' existing legislation with the assumption that the clarification had always had effect, which some believe is a form of retrospective legislation.
This is a complex argument so we have broken it down in the links below.