It was announced last month (December) that the Government has used new Targeted Anti-Avoidance Rules aimed at trade and property businesses to close down a scheme which it says was being marketed as a way to reduce corporation tax by exploiting rules that allow certain types of expenditure to be deducted automatically from profits.
In a December Treasury press release entitled Government closes tax avoidance scam, it was announced that the scheme had been notified to HM Revenue & Customs (HMRC), calling it “a wholly artificial arrangement set up for no other purpose than to avoid tax” and went on to say that HMRC will challenge any attempts made to use it before the new legislation comes into effect today.’
New legislative amendments due to be included in the Finance Bill 2013, but effective from December 21, 2012, reverse the order of priority in determining whether a deduction is allowable, so that rules giving tax relief no longer have priority over rules prohibiting deductions.
According to HMRC, the measure is expected to increase revenue by around £10m annually, and it added that a number of small firms may be expected to be affected.
The Treasury has declined to name the scheme or give further information about it. However, Exchequer Secretary David Gauke has been quoted as saying that the Government has made it clear that it will not put up with tax avoidance which uses artificial structures to aggressively exploit rules contrary to Parliament’s intended purpose.
Mr Gauke added that within days of HMRC being notified of the existence of the scheme the Government took decisive steps to shut it down once and for all.
Rob Chedzoy specialises within providing tax planning advice, support and guidance to owner-managed businesses.