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Tax Avoidance

Volume 524: debated on Wednesday 9 March 2011

The Government are fully committed to tackling tax avoidance and will take necessary steps to protect the Exchequer and maintain fairness in the tax system.

As part of their work to improve tax policy making and the stability of the tax system, the Government published a discussion document on 9 December 2010 setting out a draft protocol on tax announcements outside scheduled fiscal events. This set out the criteria that Ministers will apply when deciding whether an announcement of immediate change is justified.

In line with that draft protocol, the Government are making such an announcement today, to tackle an aggressive tax avoidance scheme that has been disclosed to HMRC. By acting immediately, the Government are seeking to protect the Exchequer and maintain fairness in the tax system.

A lessee under a plant or machinery long funding lease can claim capital allowances. Some large businesses have entered into contrived, circular transactions involving the sale, leaseback, and reacquisition of their plant and machinery, over a period of three or four weeks, with the aim of claiming tax relief twice on one amount of expenditure.

HMRC has recently become aware that the scheme has been widely marketed and implemented with associated significant risk to the Exchequer. To date instances of the scheme that HMRC are aware of have involved expenditure in excess of £1 billion, putting hundreds of millions of pounds of tax at risk.

Legislation, which will have effect from today, will be introduced in the Finance Bill 2011 to confirm that lessees engaging in transactions of this type are only entitled to tax relief up to the actual amount of their expenditure on plant or machinery. This ensures that the rules continue to apply as intended by Parliament and will protect future losses to the Exchequer.

There should be no impact on commercial leasing arrangements, as the intended amount of relief will continue to be available. The legislation will simply put beyond any doubt that it is not possible to claim relief for some expenditure twice.

The legislation will apply both to new arrangements and to existing arrangements where payment under a guarantee has not been made prior to today.

Further details have today been published on HMRC’s website together with the proposed draft legislation and a tax information and impact note.