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Government blocks ‘artificial loss relief’ scheme

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A tax avoidance scheme marketed as a way for companies ‘to artificially reduce’ their corporation tax bills has been closed with effect from 21 December 2012. Finance Bill 2013 will modify the relationship between rules prohibiting and allowing deductions, in a measure expected to increase tax revenues by £10m a year.

HM Treasury said on 21 December, in a press release titled ‘Government closes tax avoidance scam’, that the scheme had been notified to HMRC: ‘This is a wholly artificial arrangement set up for no other purpose than to avoid tax and HMRC will challenge any attempts made to use it before the new legislation comes into effect today.’

David Gauke, the exchequer secretary, said: ‘Within days of HMRC being notified of the existence of this scheme we took decisive steps to shut it down once and for all. The vast majority of people and businesses in the UK pay what they owe but a minority try to dodge their taxes by getting involved in contrived and artificial avoidance schemes. We have made significant investment in HMRC to pursue tax dodgers and collect an additional £9bn by 2014.’

HMRC said the scheme sought to ‘exploit the rules in relation to a property business to generate artificial loss relief for use by companies to reduce their corporation tax profits’.

It added: ‘The government does not accept that the scheme has the effect intended but to remove any doubt, prompt action is being taken to protect the exchequer.’

Draft legislation and an explanatory note are available on the HMRC website.