CIoT alerts firms to new anti-avoidance tax rule

The Chartered Institute of Taxation (CIoT) has warned small businesses processing commercial transactions they could experience unnecessary uncertainty due to a lack of transparency regarding the scale of a new anti-avoidance tax rule.

A new targeted anti-avoidance tax rule was introduced within the Finance Bill 2016, designed for particular distributions of share capital made on closing down a company.

The new rule targets a minority of taxpayers who are spotted exploiting the existing tax rules in a bid to minimise the amount of tax they have to pay to HM Revenue and Customs (HMRC).

The CIoT has already informed HMRC that the new rule could result in a plethora of legitimate commercial situations where tax avoidance is not thought to be the overriding factor.

The new rule lacks a formal advance clearance procedure, whilst other areas of British tax legislation applicable to similarly significant transactions do. Subsequently, taxpayers will be forced to self-assess whether the new rule is applicable to them.

Implementing a clearance procedure would mitigate uncertainty, enabling taxpayers to obtain a ruling from HMRC ahead of any significant transaction.

Tina Riches, chair of the CIoT’s owner managed business sub-committee, said: “The business community would prefer a narrower use of the targeted anti-avoidance tax rule so that legitimate commercial decisions and transactions are not delayed or obstructed.

“As it stands, without an advance clearance procedure, it will be crucial that clear guidance on how HMRC plan to interpret the legislation is made available by HMRC.

“This should be published as soon as possible, even if in draft, in order to minimise the uncertainty that the legislation has created.

“Despite our view that having to rely on HMRC guidance is a very unsatisfactory feature of the current UK tax system, businesses need certainty about the sorts of transactions that HMRC consider are caught by the legislation.

“We have therefore sent HMRC 18 examples of transactions provided by our members that we think are suitable for guidance and on which HMRC’s view is needed.”

Date published 1 Jul 2016 | Last updated 1 Jul 2016