Participants in certain perceived tax avoidance schemes are being offered the opportunity to settle with HMRC or face the prospect of a costly, drawn-out litigation process.
Who is affected?
HMRC claim to have written before 31 January 2013 to all those who participated in a scheme that:
- used Generally Accepted Accounting Practice (GAAP) to write off expenditure/ assets to create losses or
- accessed film relief for production expenditure or
- created partnership losses using specific reliefs.
HMRC have identified certain schemes to which the opportunity specifically does not apply and we can supply further details of these schemes on request.
Why should I settle?
HMRC believes these schemes fail because the majority of the funds employed in the business were not used for relevant expenditure, or because the schemes do not qualify for sideways loss relief.
A key question is whether the provider can demonstrate that a proper trade is being carried out. If so, then any relief claimed should theoretically be available.
What is the offer?
Broadly, HMRC will restrict relief for losses or capital allowances to the real economic cost borne by participants, essentially denying relief for loans taken out to invest in such arrangements. In certain circumstances, HMRC will also seek to recover tax on income arising through the arrangement.
What are my options?
- Accept the settlement opportunity: HMRC will restrict the loss relief accordingly and assess the tax that is owed to them
- Litigate and defend the entitlement to relief through the courts. This could be costly and may result in all the tax relief being withdrawn.
There is no deadline for accepting the offer, but HMRC have threatened to withdraw the opportunity as litigation draws closer.
Do I stick or twist?
HMRC is clearly taking an aggressive stance against perceived tax avoidance schemes and we are increasingly seeing a negative public reaction to such schemes. Even schemes demonstrating a strong technical case may still be defeated in court against the current backdrop of 'moral repugnance'.
There is no 'magic bullet' solution and it will ultimately be for each taxpayer to decide how to proceed. Smith & Williamson has a specialist team which has acted on behalf of many clients in such cases, and would be happy to comment on your specific circumstances should you require assistance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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