Anti-Avoidance Measures

Tax schemes

In 2004 new disclosure rules were introduced in relation to certain tax schemes. Broadly the rules require ‘promoters’ to provide details of their schemes to HMRC shortly after the scheme is sold. The government now intends to:

• extend the regime to income tax, capital gains tax and corporation tax
• replace the ‘filters’ for direct tax with ‘hallmarks’ in line with the system for VAT
• require businesses (other than SMEs) to provide information on direct tax schemes and arrangements devised ‘in-house’ within 30 days, bringing them more in line with the rules for scheme promoters.

The changes will be effective from 1 July 2006.

Sale of lessor companies

Groups of companies have benefited from capital allowances in the early years of a lease, before selling lessor companies to loss-making groups, thereby avoiding paying tax on the subsequent profits.

Small changes will be made to the measure introduced from 5 December 2005 which imposes a charge on the lessor company to recover the tax benefits that have been taken but grants an equal relief on the day after the sale.

VAT measures

• powers to allow HMRC to direct that an individual business be required to keep specified additional records in respect of goods such as mobile phones and computer chips
• measures affecting businesses which seek to avoid VAT on phone cards and other face value vouchers
• stepping up activities in an attempt to tackle Missing Trader Intra-Community VAT fraud
• clarification of powers relating to inspection of goods
• informal consultation on a proposed change to the partial exemption rules where approval is sought for a special method.

Other measures

A number of further measures will be introduced including some changes to those announced in the Pre-Budget Report:

• minor amendments are to be made to the legislation and guidance in respect of corporate capital losses. The rules were introduced with effect from 5 December 2005 to ensure that such losses can only be created and used as a result of genuine commercial transactions rather than to gain a tax advantage
• legislation will ensure that rewards obtained from avoidance schemes using options over employment-related securities will be subject to PAYE and NIC. This measure will apply with effect from 2 December 2004 when the government made the original statement regarding such schemes
• a measure to ensure that individuals and trustees cannot exploit the ‘bed and breakfasting’ rules in respect of capital gains
• legislation will be introduced to block a variety of arrangements entered into by companies which involve financial products that are designed to avoid tax
• a measure to ensure that some companies which became non-resident in the UK as the result of a double taxation treaty before 1 April 2002 are brought within the controlled foreign companies legislation. This will have effect from 22 March 2006
• further details are available on the government’s strategy to tackle tobacco smuggling
• as part of their review of tax and NICs the government will consult on action to tackle disguised employment through managed service company schemes
• three provisions will be introduced to prevent the exploitation of tax relief on certain donations to charitable bodies.