Whilst the Government has not indicated that it will never introduce tax changes on a retrospective or retroactive basis, under the Protocol, changes to tax legislation where the change is effective from a date earlier than the date of announcement will be “wholly exceptional”. Such changes to tax law normally will be announced only by the Budget. Outside the Budget, changes to tax law will be made on a retroactive or retrospective basis only where: (i) there would otherwise be a significant risk to the Exchequer; (ii) significant new information has emerged to identify the risk (a change in HMRC’s interpretation of the law will not be regarded as significant new information unless it is prompted by a Court ruling; and (iii) changing the law immediately is expected to prevent significant losses to the Exchequer.
Whilst there is uncertainty as to what is meant by ‘significant’ and the scope for making such announcements could have been narrowed further, nonetheless, the draft Protocol is to be welcomed. It will help in terms of improving the predictability and stability of the tax system whilst maintaining the Government’s freedom to make changes to protect tax revenues.