HMRC Puts Income Tax Loss Restrictions On Hold

Before considering proposed measures to counter tax avoidance involving income tax loss reliefs, HM Revenue & Customs (HMRC) will monitor the effect of several recent policy initiatives to tackle tax avoidance.

A consultation launched in June 2011 explored “ways of ensuring that genuine business losses and employment losses are relieved while effectively deterring taxpayers from entering into tax avoidance arrangements intended to exploit these loss reliefs”.

Possible options to counter avoidance included limiting loss relief to £25,000 and an administrative approach of withholding repayment where the total loss relief claimed for a set-off in a year is in excess of £25,000 until claims have been agreed by HMRC.

However, the department noted in a response document published last week that measures such as this could “be expected to impact on avoidance behaviours”, as they would affect the amounts of loss relief that may be claimed against general income.

And they added that the proposed general anti-abuse rule was ‘”likely to affect at least some of the schemes that seek to exploit loss reliefs against general income and gains.”

The response also considers some detailed options to improve the information available to HMRC about tax avoidance through the ‘Disclosure of Tax Avoidance Schemes (DOTAS) regime, in order to make this an even more effective tool for them.

With the plethora of tax schemes and consultations on the table at the moment, it is worth noting that the proposal that has been put on hold is from last year and is not the same as this year’s consultation on restricting income tax reliefs and losses to £50,000 or 25 per cent of income.

As an accountant, Sarah Jenkins, specialises in management accounting, business development and financial reporting.

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