What is Section 24 and Why Was Permission For A Judicial Review Declined?

by Mark Alexander

20:43 PM, 9th October 2016
About 2 years ago

What is Section 24 and Why Was Permission For A Judicial Review Declined?

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What is Section 24 and Why Was Permission For A Judicial Review Declined?

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“Section 24” of The Finance Act (No. 2) 2015  isn’t actually a tax change. It is an amendment to GAAP (Generally Accepted Accounting Principles). It changes the way that profit is calculated and then introduces “tax relief”.

Let us be clear what Generally Accepted Accounting Principles are.

If a business has income of £1,000 and has £1,000 of expenses then its profit is zero.

If a business makes a profit then those profits are subject to tax at varying levels depending on the structure of the business and the amount of profit made.

Another generally accepted accounting principle is that if a person borrows money to buy something for personal use they can’t offset the costs of financing that purchase against other income. That applies to pretty much any product you can think of, e.g, a bucket and sponge to clean windows, a computer, a vehicle or a property. However, if a business borrows money to buy any of these things with the intention of generating an income the costs of financing those investments are a legitimate business expense.

Section 24 changes everything, but only for individual landlords. Generally Accepted Accounting Princples are only being amended for individual landlords by Section 24. The legislation does not apply to any other business, not even to incorporated landlords!

When Section 24 is in full force £1,000 of income minus £1,000 of finance costs to purchase income producing assets = £1,000 of profit for private landlords only.

I can probably guess what any sane human being would be thinking when reading this for the first time and I agree. Bonkers isn’t it?

To add to the madness a new tax relief of 20% of finance costs will become available for individual landlords to deduct from the tax bill on their new fictitious profit. Presumably Government will seek to remove this at some point too on the premis that homeowners don’t get the same tax relief! (you’re  perfectly normal if you are shaking your head in disbelief at this point)

On 6th October 2016 Section 24 was challenged legally with a permission hearing for a Judicial Review. The grounds were human rights, discrimination and contravention of EU State Aid Law. Permission for a Judicial Review to proceed was denied on all three grounds.

Having sat through the hearing I can understand why. In my humble opinion, nobody addressing the Judge actually fully grasped that Section 24 had nothing to do with tax relief. There was no mention of Generally Accepted Accounting Principles whatsoever!

I thought Cherie Blair was very elequent at explaining why the consequences of Section 24 were unfair.  I also though she made a good job of playing to the gallery, the people who had funded her presence of course. The bottom line though was that she failed to achieve what she had been paid to do.

Having got all of that off my chest, you may be shocked to read that I think the refusal of permission for a Judicial Review to proceed could be a blessing in disguise.

If permission had been granted around £600,000 would have been needed to be raised in order to fund the full Judicial Review. That would have been a mammoth task and diverted attention and resource away from lobbying and looking for solutions. Even if the £600k had been raised we would be no further forward and with no more guarantees than we have today.

Many were disappointed because the prospects for a full Judicial Review provided hope. However, as the emotion of disappointment fades over time I think people will realise that a strategy of hope isn’t a good fit for property investors. This is because people like you and me need to feel in control of our own destiny.

So where do we go from here?

Two days after the permissions hearing was declined Property118 made the largest donation to date to Axe The Tenant Tax to date. We hope this will inspire others to commit to contribute to ongoing fundraising. We also wanted to send out a clear signal that we will continue to support positive action to reverse this wicked policy. At the same time though we will continue to help landlords who, like me, want to be in control of their own destiny. This is still possible but there isn’t a one size fits all strategy. For those affected by s24, those of us you who prefer to take control of your own destiny, please see the linked page below …

https://www.property118.com/tax



Comments

9:15 AM, 10th October 2016
About 2 years ago

An excellent summary of what went wrong with the Section 24 Judicial Review. I have been saying for some time that the basis of the claim was wrong. Given the fact that it is a change to GAAP and that the House of Lords (now Supreme Court) gave legal status to UK GAAP in Threlfall v Jones and Gallagher v Jones it seemed to make more sense to question the accounting justification for the change. This basis for the change would have made more sense and brought into question Parliaments right to change the Accounting Standards. At present it appears that Parliament can change UK GAAP without consulting those charged with creating the standards.

Sean Graveney

9:30 AM, 10th October 2016
About 2 years ago

It would be very concerning if Cherie Booth has taken all of that money without taking the approach most likely to win the case, however it's worth noting that the House of Lords were consulted and the Supreme Court cannot overturn primary legislation.

Steve Wood

9:52 AM, 10th October 2016
About 2 years ago

What is good to hear is that the Plan B will now continue and gain momentum and we can all unite to bring pressure, understanding of the workings, effect, unfairness and hopefully being about a change to this dreadfully poor tax change. We are going through a period of uncertainty that does nothing to help the UK prosper. There is to much anti-landlord talk without giving due thought to the issues. I worry right now at the director tax is going. Small businesses and landlords do a lot of good. We need to encourage and assist them, not whack them over head! Small landlords and business employ staff and workers. They pay tax. Lots of tax. They spend money. Isn't that good? Does money grow on trees to support state spending? So HMG needs to rethink the direction it's going quick.

10:09 AM, 10th October 2016
About 2 years ago

Reply to the comment left by "Steve Wood" at "10/10/2016 - 09:52":

I agree totally Steve. We keep hearing comments from the Government of how important small business is the the economy but they keep hammering it. The good point I have noted as regards Landlords is that the Gavin Barwell the Housing Minister was quoted in the FT on 13 September as stating the importance of Landlords in meeting housing requirements. Hopefully this is not simply more Political rhetoric intended to appease the masses but a genuine change of direction. Maybe we will get told of changes in the Autumn Statement on 23 November - we can but hope that sanity returns to UK Politics.

michael fickling

11:58 AM, 10th October 2016
About 2 years ago

Mark having read your comments on what was and wasnt put by our barrister at the hearing ; : this is what i feared and supposed .I share your disapointment . Can i ask please>>>>> . (.Please understand these are not criticisms but the details here are very important in forming a view of what may be possible now.).
A..Did Cherie clearly at anytime put the fact that this clause is not in FACT an income tax at all and can not be described as such because its based entirely on a cost. .so did she actually say/put " this is not income tax " etc..at the hearing OR in any papers put at THIS last hearing..OR served for this particular hearing.or..any documentary submission for/...at this hearing.
B. .at your pre hearing liasons/meeting communications with counsel were there any briefings. (This is very specific ) please from our side to her as our counsel... that the case should be put very largely based upon that fact. (A above).and IF so what was her response/view advice...or was it not put to her and actually more of a case of her ( understandably ) being given free professional rein on how to bring the case.
C,.. has there at any time been any discussions with her or her team around abuse/extension of governmental process in the form of misuse of income tax..law and procedure. The last being extremely important around one VERY specific area.....ie.. tax law being used NOT to raise revenue but to drive a section of business people ./entrepreneurs out of business.I think this is very very important as a very strong argument can be put that this was the express intention here...the background papers used in its design..its four year introduction and the two quoted rationales for doing it..Carneys "threat to economy" briefing and Osbornes pronouncements on 1st time buyers ALL make that very plain... as none of those things would (allegedly) improve without this clause having the effect of driving landlords out...and being designed to do exactly that.These are both expressed and implied facts in clause 24 and its associated papers/rationales.Id also add many senior MPs responses at various times to us and upon this..
Bringing or re bringing a case on misusing "income tax" to drive a section of business people out of their market or reduce market share also must include argument about whether a government can simply wield "income Tax" as their weapon of choice to stop the growth and even the continuance of any legitimate area of business...a huge power extension...avoiding any full debate or democratic parliamentary processes and also and in addition actually structuring that chosen weapon "income tax " in such a way that having chosen that route they also went on to misuse that route, weapon or tool in itself..and pervert it into a levy upon "costs"..not based upon income at all..There were various other more proper and normal means of dealing legitimately to any concerns they may have held ( about buy to let ) as a government...they chose to impose a retrospectively effective levy upon a cost ..and pushed it through deceptively described /parceled and advocated as an income tax ...when it was neither a tax..or a revenue raising instrument.....quite the reverse..it was ultimately designed so as to actually effectively reduce revenue as its purpose was very specific..to reduce investment in private buy to let by existing landlords and to destroy the growth in buy to let investment.
.N.B>>.They also I believe and very effectively... deceived parliament whilst doing so..and that is of course a place of record ! ...Very few judges and very few sensible media pundits would want to support government being able to destroy existing enterprise by raising punitive levys whilst waving the false banner of "income tax" whilst in reality having the expressed and implied intention within the actual instruments construct and design ( C24 )... .... of not raising revenue at all ...but actually killing off or very seriously reducing the future and existing enterprise...and doing it by raising a cost upon a cost...The implications of a government misusing" income tax" to destroy/reduce rather than its proper purpose..raising revenue are potentially huge and constitute an effectively unlimited extension of government power.
Importantly it is the TWO together that are particularly unprecedented..here..".tax" upon a cost and "tax " to destroy/reduce.. NOT to increase revenue. Many would rally to opposing that..perhaps even some unlikely or otherwise reluctant persons...also. Judges do of course consider their position and office to be very important in balancing and mitigating serious extensions of governmental power and judges most feinitely do not like deception or duplicitous practice when matters are presented constructed and designed or indeed any contrived means being used where other more conventional/transparent routes are available .and could have been used to achieve same aim...so the government side here..if they had to fight in court again.. on this basis.. would be in considerable difficulty.. Cl 24 .. as a means and purpose and in its presentations are contrarian, duplicitous ,retrospective and destructive in outcome and presentational v real intentions... and not true to revenue and tax raising purposes..as well as principles and precedents. .Not a good pitch to go into bat on for the government side if we can re bring and restrict the game to that tight but very important pitch.
I think maybe we should explore that bigger cause/case and i do believe it would be more attractive to a judge, if, it could in fact be brought ?...
We wouldperhaps raise three questions essential to our countries future democractic principles..NOT just private landlords and present to that effect..>>>>>>>Three questions seem appropraite >
Q1.POWER EXTENSION. Is a government to be given free rein to excercise destructive power over important sections of the economy by raising any draconian levy based entirely upon a known described and *articulated cost.. .already faced and paid by that section of the economy/business..and entirely of the governments own choosing?..and furthermore at a very high rate or % of its own choosing ..upon that cost.? ..A perversion and extension of government power/function.
(* acknowledged in its own policy as such). AND>>>
Q2...PERVERSION OF MEANS>>>>.is a government to be allowed to do so by simply and falsely describing its chosen levy on costs as income tax and also using income tax law and procedure to introduce it and enforce it as income tax...when in fact it has designed and knowingly created its own instrument in such a way that it is not at all based on any form of income whatsoever but actually upon a cost already faced by the enterprise concerned.? An income tax perversion.
AND>>
Q3..DECEPTION>>>>In pursuing such a POWER and by such a MEANS is a government to be allowed to present all of this to the house of parliament as something completely different from its actuality in purpose, form and intent ...in this case for example/..describing it and promoting it as a revenue raising/levelling instrument ( income tax ) ....with revenue raising as its implied purpose when in fact its intended purpose in its construct ,design and rationales was actually intended to both remove, restrict and reduce that very same private enterprise...both current and future and that these aims were either its sole or most determined aim rather than increasing revenue..which by its very construct it is almost certainly not to do...and wasnt in truth expected or planned to do>>>> A perversion inflicted on parliament and democartic process.
MAYBE this really is a three stage test>> These 3..are of course bigger questions than private landlords V corporates....tax protocols.....Indeed they are also constitutional issues ultimately. What is also true and clear is that If we can pursue this strategy via the courts ( or elsewhere ? ) then the pre existing "taint"...and " negative emotion/ sentiment"..shifts ..from "who gives a monkeys about landlords..etc "....to "...hey...thats very very big government and its crushing overbearing government versus the small private individual and free enterprise"...many people wherever...and maybe whoever...journos..legal..business and public will see that as.."well im not too fussed about the landlords.. BUT..its bad government ..manipulative.too powerful /scarey and i dont like the principals and how its been done and might be done again if unchallenged/constarained ".
How do we see it and should we re visit the law?

Mark Alexander

12:24 PM, 10th October 2016
About 2 years ago

Reply to the comment left by "michael fickling" at "10/10/2016 - 11:58":

Hi Michael

I was not one of the litigants and for that reason I was not Party to Counsels briefing or Counsels advice.

The reasons for the paper application being declined were never shared so far as I am aware.

I was not consulted on the case and believed, in good faith, that such a prolific QC and legal team would have left no stone unturned.

I was not privy to the legal bundles so I have no idea whether the legal arguments I have summarised in my article were contained.

I missed the first 10 minutes of the hearing but I do not recall any mention of GAAP or associated case law during the legal arguments I was privy to from the public gallery.
.

Rachel Hodge

16:28 PM, 10th October 2016
About 2 years ago

Reply to the comment left by "michael fickling" at "10/10/2016 - 11:58":

Dr. Rosalind Beck - did you make contact with Michael, and are you in contact with Chris and Steve for the campaign?

I think it's very important they hear what Michael has to say.

Mark - do you know if Chris and Steve have read this thread?

Thanks

Mark Alexander

18:43 PM, 10th October 2016
About 2 years ago

Reply to the comment left by "Rachel Hodge" at "10/10/2016 - 16:28":

Hi Rachel

I sent them both an email and a link earlier today. I've not heard from them since.
.

Rachel Hodge

18:58 PM, 10th October 2016
About 2 years ago

OK, thanks Mark

Mark Alexander

19:00 PM, 10th October 2016
About 2 years ago

Reply to the comment left by "Rachel Hodge" at "10/10/2016 - 18:58":

Chris has just acknowledged my email.

I have asked him to ask Omnia to read this thread.
.

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