HMRC Offers Settlement Opportunity for Tax Avoiders
As party of its continuing crackdown on tax avoidance, HM Revenue & Customs (HMRC) announced on 19 December 2012 that those who are involved in certain tax mitigation techniques will be able to voluntarily settle their tax liabilities without any litigation being taken.
This voluntary settlement opportunity is being offered to participants in the following tax mitigation schemes:
▪ schemes which seek to use Generally Accepted Accounting Practice (GAAP) to write off expenditure or the value of assets to create losses either for sole traders, or individuals or companies in partnership;
▪ schemes seeking to access the film relief legislation for production expenditure; and
▪ schemes seeking to create losses in partnerships through reliefs such as first year allowances, payments made for restrictive covenants, specific capital allowances.
HMRC views these schemes as ineffective.
There are some schemes with these features which are specifically excluded from the settlement opportunity. HMRC will give more details for individual schemes which are included, but has stated that, broadly, HMRC will restrict relief so that expenditure which is not part of the real economic cost borne by the participants will be excluded when calculating losses or capital allowances.
This means that, subject to the particular facts of the scheme, only amounts equivalent to the actual cash contribution funded by the participant and expended in the claimed trade will be allowed when computing losses or capital allowances. No relief will be allowed for interest on any loan used to fund contributions to the partnership in excess of the initial cash contribution. Where fees are paid for the provision of the wider funding arrangements, tax advice or litigation protection, it is likely that they will not be allowable.
Under this settlement opportunity the treatment of income that is received by the partnership, individual or company will depend on the particular arrangements. In general where there is a contingent right of future income from the asset purchased, it is expected that that income will be taxable in full. Where the income arises directly from the repayment of the circular loan finance, amounts received over and above the initial finance will be taxed as investment income on an amortised basis over the period of the unwind. The return of the initial finance will be treated as a capital receipt and not taxed.
The settlement opportunity is open to partnerships, individual partners, company partners and sole traders who have used certain schemes. The settlement opportunity extended to partners is restricted to the specific circumstances of the schemes covered by this settlement opportunity. It is not open to partners in any other partnerships.
This opportunity is made in accordance with HMRC’s Litigation and Settlement Strategy.
If a taxpayer declines the settlement opportunity, HMRC will increase the pace of its investigations and accelerate disputes into litigation. In such circumstances, HMRC states that it will advance all arguments reasonably available to it at both partner and partnership level, including those that may deny relief completely.
There is no deadline for acceptance, but as litigation nears, it will become more likely that HMRC will consider that the dispute is no longer suitable for the settlement opportunity.
Newshams Tax Solicitors have an excellent track record in managing disputes and settlements with HMRC. If you have been involved in any of these tax avoidance schemes and would like to speak to a experienced tax adviser in London to help you get the best result, contact us today on 020 7470 8820.