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UK Tax Avoiders Offered Settlement Opportunity

By Amanda Banks,, London

25 December 2012

British tax authorities have invited participants in certain tax avoidance schemes to settle by agreement what HM Revenue & Customs has identified as being outstanding tax liability, warning those who fail to comply that they will face litigation that may lead to "additional costs and potential reputational damage," as well as "a worse tax result than they would obtain under the settlement opportunity."

Schemes identified by HMRC include: "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 film relief legislation for production expenditure; and schemes seeking to create losses in partnerships through reliefs such as first year allowance, payments made for restrictive covenants, or specific capital allowances."

Such schemes, according to HMRC, "fail to provide the relief claimed either because the majority of the funds employed in the business are not used for relevant expenditure or because the schemes do not meet the requirements for sideways loss relief so that the full relief claimed is not available to the participants." Further, "expenditure which is not part of the real economic cost borne by the participants will be excluded when calculating losses or capital allowances." This includes loans paid to partnerships in excess of the original cash contribution, although under the terms of the settlement, "the return of the initial finance will be treated as a capital receipt and not taxed."

HMRC is also considering its position on offering settlements in relation to film partnership sale and lease-back schemes, as well as on interest relief schemes that result in a claim to interest relief under S353(1) of the Income and Corporation Taxes Act 88 which is used as a deduction against general income.

Individual partners in a company that declines the offer may still seek to make a settlement on their own account. However, the HMRC reserves the right not to include any particular case in the settlement offer, and the offer excludes cases in which there is evidence of fraud or where none of the tax relief claimed through such schemes was due.

As an extra incentive to comply, HMRC also highlights successful cases it has brought to date, in particular: Commissioners for Her Majesty's Revenue and Customs v Tower MCashback LLP 1, Eclipse Film Partners No 35 LLP v Revenue & Customs, Icebreaker 1 LLP v Revenue and Customs, Samarkand Film Partnership No 3 v Revenue and Customs, and Alchemist (Devil's Gate) Film Partnership v HMRC.

TAGS: tax | tax avoidance | United Kingdom | enforcement | HM Revenue and Customs (HMRC) | HM Revenue and Customs (HMRC)

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