Proposed changes to the rules allowing taxpayers to set business losses against income or capital gains are ‘unworkable, disproportionate and unfair’, according to the Chartered Institute of Taxation.
The CIOT’s Low Incomes Tax Reform Group warned that ‘broad brush measures’ to tackle avoidance could put low income taxpayers at a disadvantage. Any restriction on of genuine loss claims would ‘hamper’ the government’s efforts to encourage self-employment.
The ICAEW Tax Faculty said HMRC’s consultation High-risk areas of the tax code: Relief for income tax losses, proposing the restriction of sideways loss relief where the rules are used for tax avoidance, appeared to have ‘a second, albeit unstated, policy objective, namely to cut the cost to the Exchequer of the general loss relief currently available to genuine commercial businesses’.
The Faculty said it would be ‘very concerned’ if changes were made to the general loss relief rules – which were in place ‘for sound policy reasons’ – to address specific avoidance arrangements.
HMRC said in the 30 June consultation that the relief was 'prone to misuse for tax avoidance purposes’. It proposed to:
restrict the relief to the amount of the economic loss irrevocably suffered in the trade or other activity – the ‘principled approach’; or
apply a £25,000 cap in any one tax year on losses that can be relieved against general income or capital gains; or
withhold repayment or credit for claims in a tax year in excess of £25,000 in the tax year until the claim is agreed by HMRC.
The three options set out by HMRC were not acceptable, the CIOT argued, and ‘no case’ had been made for change.
‘We think that any perceived problem should be addressed by making better use of HMRC’s current information and compliance checking powers,’ it said.
Avoidance schemes like those referred to in the consultation should be addressed by HMRC resourcing the operation of existing legislation ‘more effectively’.
Proposed changes to the rules allowing taxpayers to set business losses against income or capital gains are ‘unworkable, disproportionate and unfair’, according to the Chartered Institute of Taxation.
The CIOT’s Low Incomes Tax Reform Group warned that ‘broad brush measures’ to tackle avoidance could put low income taxpayers at a disadvantage. Any restriction on of genuine loss claims would ‘hamper’ the government’s efforts to encourage self-employment.
The ICAEW Tax Faculty said HMRC’s consultation High-risk areas of the tax code: Relief for income tax losses, proposing the restriction of sideways loss relief where the rules are used for tax avoidance, appeared to have ‘a second, albeit unstated, policy objective, namely to cut the cost to the Exchequer of the general loss relief currently available to genuine commercial businesses’.
The Faculty said it would be ‘very concerned’ if changes were made to the general loss relief rules – which were in place ‘for sound policy reasons’ – to address specific avoidance arrangements.
HMRC said in the 30 June consultation that the relief was 'prone to misuse for tax avoidance purposes’. It proposed to:
restrict the relief to the amount of the economic loss irrevocably suffered in the trade or other activity – the ‘principled approach’; or
apply a £25,000 cap in any one tax year on losses that can be relieved against general income or capital gains; or
withhold repayment or credit for claims in a tax year in excess of £25,000 in the tax year until the claim is agreed by HMRC.
The three options set out by HMRC were not acceptable, the CIOT argued, and ‘no case’ had been made for change.
‘We think that any perceived problem should be addressed by making better use of HMRC’s current information and compliance checking powers,’ it said.
Avoidance schemes like those referred to in the consultation should be addressed by HMRC resourcing the operation of existing legislation ‘more effectively’.
