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In June 2011, HMRC published the consultation document ‘High-Risk Areas of the Tax Code: Relief for Income Tax Losses to look at options to deter tax avoidance in relation to income tax loss reliefs, more generally known as sideways loss relief.
The measures included limiting the relief to £25,000, and an administrative approach of withholding repayment where the total relief claimed for set-off in a year exceeded £25,000, until the claims have been agreed by the Revenue. The responses to the consultation have been published.
Since the condoc was published, the government has been consulting on a general anti-abuse rule (GAAR) and a cap to restrict various income tax reliefs.
As a result, the taxman is to monitor the effect of the developments before considering whether further action is needed against avoidance involving income tax loss reliefs.
Katharine Arthur, tax partner at accounting firm MHA MacIntyre Hudson applauded the move, saying, 'In tough economic times, trading losses are more common than we would like. The ability to offset them against other income is a valuable relief for many at the heart economy. Those running genuine loss-making businesses would have been worse off with the introduction of the proposed cap.
'Although this could be perceived as another Budget U-turn, the shelving of the cap is welcome and will not act as a disincentive to setting up or running self-employed businesses in the current economic climate,' said Ms Arthur.
I find this article very confusing.
What para 4.2 of the Response is saying is that there’s no point in pursuing the proposals re sideways loss relief in ‘High Risk Areas of the Tax Code: Relief for income tax losses’, because the ‘Cap on unlimited tax reliefs’ consultation (which does not end until 5 October) and the GAAR consultations have effectively overtaken the earlier proposals.
So it is good news in that any limit on sideways loss relief is likely to start at £50,000 (rather than £25,0000), but not as good as this article suggests.
The comment that "the shelving of the cap is welcome" is to say the least inaccurate!