HMRC publishes sideways loss relief settlement guidance

11th August 2015

HM Revenue and Customs (HMRC) has launched a settlement scheme for those in dispute over sideways loss reliefs.

The scheme is targeted at sole traders, corporates and UK GAAP partnerships that have sought to create a loss through the write-off of expenditure or the value of rights or assets through GAAP.

Sideways loss relief is an allowance made for trading losses. There is a limit on the amount of income tax relief that an individual may claim for deduction from total income in a single tax year.

Separate guidance has been published for both sole traders and companies. HMRC is inviting participants in these schemes to settle their tax liabilities by agreement, without the need for legal action.

This settlement opportunity offers both the taxpayers and HMRC the best chance to resolve sideways loss relief disputes in the most cost-effective and consistent manner.

While the settlement regimes differ for sole traders and companies, they broadly take the form of the following:

  • Relief against additional income will be allowed in an amount equivalent to the taxpayer’s contribution to the scheme, less any element expended on unallowable fees.

  • Unallowable fees are those spent on tax advice or circular funding arrangements. The balance of the loss claim won’t be allowable. Loan interest will only be allowable providing it represents the allowable expenditure paid out of the initial cash contribution.

  • Any share of income attributable to the cash element of expenditure will be taxable in full, while any share of income attributable to the loan financed element will only be taxable as it represents investment income beyond the return of the initial capital.

Where people decline the settlement opportunity, HMRC will be increasing the pace of their tax investigations and move disputes to legal action with haste.

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