UK and International Tax news

Capital Allowances Loophole Ended

Tuesday 23rd August 2011

HMRC have recently that announced that it will introduce legislation in the 2012 Finance Bill, to take effect from 12 August 2011, to prevent tax avoidance through the acceleration of claims to first-year allowances.

On the 31 May 2011 HMRC published a consultation document on ‘Changes to the capital allowances anti-avoidance rules for plant and machinery’, inviting comments on a number of proposals by 31 August 2011.

One of the proposed changes was the repeal of the ‘exception for manufacturers and suppliers’ provided by s.230 CAA2001. This exception currently disapplies several anti-avoidance rules when certain conditions are met. The repeal had been proposed because there was evidence that the exception was being used to side step the anti-avoidance rules. This undermined the effectiveness of the anti-avoidance rules which were designed to stop tax avoidance through the acceleration or inflation of relief for capital allowances. The purpose of the consultation in respect of this aspect is to identify whether the proposed repeal will have any adverse impacts on genuine commercial activities. Subject to the outcome of the consultation the intention had been that the repeal would have effect from April 2012.

HMRC have become aware of an avoidance scheme being promoted which seeks to take advantage of the s.230 CAA 2001 exception before it is repealed. Given the scale of the tax potentially put at risk by the scheme, the Government has decided to announce the repeal of s.230 CAA 2001, to the extent that it provides an exception from s.217 CAA2001, with effect from 12 August 2011.  HMRC have also published draft legislation and a technical note on the repeal.

According to HMRC, no formal consultation responses have been received on whether this repeal would have any adverse impacts on genuine commercial activities. There is still an opportunity to make such representations through the original consultation, which closes on 31 August 2011, and these will be taken into account when finalising the legislative changes required to give effect to the above .

If you would like further information on the above, please contact Keith Rushen on 0044 (0)20 7486 2378.

Contact Us