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HMRC have notified an avoidance scheme that takes advantage of terminal loss relief. It works by artificially engineering a deemed cessation of trading, according to the Treasury.
This means that a company gains access to relief for losses much earlier than Parliament intended, undermining clause 23, 'temporary extension of loss carry back provisions', in the current Finance Bill.
HMRC believe the scheme is capable of being used by a large number of firms, resulting in a significant loss of revenue. Legislation will therefore be effective in relation to reorganisations taking place on or after 21 May 2009.
The new clause relates to situations in which there has not been a genuine cessation of the trade but it is claimed that a cessation has occurred as a result of the trade being transferred to an entity outside the scope of corporation tax, and it can be established that this is part of a scheme or arrangement – one of the main purposes of which is to obtain terminal loss relief.
In such circumstances, terminal loss relief will not be available to the transferring entity.
As a consequence of the scheme, carried forward losses relating to the trade will not be transferred to the receiving person(s) for set off against future profits.
