My right honourable friend the Financial Secretary to the Treasury (Stephen Timms) has made the following Written Ministerial Statement.
I can today announce the implementation of a measure following consultation and two measures to protect revenues.
Modernising tax relief for business expenditure on cars
Following consultation, the Government published draft legislation on 8 December 2008 setting out proposals for new rules for tax relief for business expenditure on cars. With effect from April, the rate of relief will be determined by the car's CO2 emissions, rather than its cost. Associated rules governing the proportion of lease rental payments that may be deducted for tax, where businesses hire or lease their cars rather than buying them, are being similarly amended. I can confirm that this measure will be going ahead with effect from today for businesses in the charge to corporation tax and from 6 April for businesses within the charge to income tax.
However, following comments received on the published draft legislation a number of changes to it are proposed. These, together with anti-avoidance provisions, are set out in revised legislation published on the HMRC website today.
Avoidance using life insurance policies
Schemes designed to avoid income tax have been identified by HMRC. The schemes purport to create income tax loss relief from offshore life insurance policies that can be set against other taxable income. The Government do not accept that the schemes have the effect sought or that there are any circumstances in which income tax loss relief can arise on life policies. However, to put the position beyond any doubt, legislation will be introduced in the forthcoming Finance Bill that will prevent income tax loss relief from being available from transactions on offshore life policies.
This change, effective from 6 April 2009, will ensure that claims cannot be made for income tax loss relief from offshore life insurance policies relating to the years 2009-10 onwards. Furthermore, it will ensure that tax deductions will not be allowed for the years 2009-10 onwards even if the loss related to a previous year.
The change will also have effect from today to all new offshore life insurance policies. It will also apply to existing offshore policies which on or after today are wholly or partly assigned to the person claiming a deduction, become used as security for a debt, or are varied so as to increase the benefits secured.
A copy of the draft legislation together with a draft explanatory statement will be published shortly on HMRC's website.
Avoidance using artificially created employment losses
The Government have become aware of a further artificial and aggressive avoidance scheme that seeks to abuse tax reliefs available for employment-related losses incurred by employees and former employees.
This scheme relies on deliberate default during the course of a contrived employment. During the course of the employment, the employer will deliberately default in relation to one or more aspects of certain financial arrangements undertaken by the employer. Under the terms of the employment, this will trigger compensation payable by the employer. The employee will be contractually obliged to suffer all or part of the compensation payable by the employer in respect of the default and will then claim relief for this as a loss against other income.
These arrangements are similar to the highly abusive avoidance scheme that the Government acted against with effect from 12 January 2009. The Government do not accept that any of these highly contrived arrangements have the effect that is sought, but will remove any doubt by introducing appropriate legislation in the Finance Bill 2009 to prevent loss relief being allowed where liabilities relating to an employment are incurred by employees and former employees with a main purpose of the avoidance of tax. This legislation will have effect from 12 January 2009.
The legislation will not affect genuine cases where tax avoidance arrangements are not involved.
Details are contained in a Technical Note; the note, the draft legislation relating to this announcement and the draft legislation relating to the earlier Statement of 13 January 2009 are published on HMRC's website.