On 12 January the Government via HMRC announced that it was to take immediate steps to counter tax avoidance resulting from post cessation trade relief. This relief arises when costs or bad debts are incurred which directly relate to a trade, profession or vocation which has ceased. Such costs or bad debts may be allowed against income or capital gains for tax purposes. Examples given include the cost of collecting trade debts, the cost of insuring against claims for defective work and legal and professional fees.
The announcement on 12 January by The Exchequer Secretary to the Treasury, David Gauke, effectively put a stop to the relief being available purely in respect of specific arrangements the main purpose of which was to obtain post cessation trade relief. It is understood that the action was taken in response to the Government becoming aware of the existence of a tax avoidance scheme which created overseas “expenses” thereby allowing post cessation relief to be claimed within the UK.
Whilst exact details of the scheme are unavailable, the Treasury statement describes the scheme as “contrived and aggressive” and which could have resulted in putting “at risk substantial amounts of tax.” As with any tax legislation change, there is a need to ensure that the proposed legislation does not impact on the more mainstream post cessation trade reliefs which remain in place. The draft legislation is therefore subject to a consultation period which closes on 12 March 2012. This consultation period does not affect the intention of the legislation which became effective on 12 January.
Once again this action highlights the differences between legitimate tax planning methods and tax avoidance and the importance of taking robust tax advice when considering transactions. As tax mitigation specialists Newshams are able to give advice on tax matters, how tax may affect any private or business transaction and how to put in place an effective mitigation strategy.
Contact us now on 020 7470 8820 and ask to speak to a tax adviser about how we can mitigate your tax costs or e-mail us at firstname.lastname@example.org and we’ll get straight back to you.
25 January 2012