HMRC spotlight sideways loss relief schemes
The latest form of tax avoidance to come under HMRC’s ‘spotlight’, concerns investments made with the intention of obtaining trade loss reliefs (‘sideways loss relief’).
HMRC say that they are aware of schemes seeking to exploit sideways loss relief by generating trade losses for individuals.Such schemes are often funded in part by borrowing and may include a mechanism that means returns are all but guaranteed. HMRC consider that in many cases no relief is due as these schemes fail to meet the basic commercial requirements test. In addition the investors rarely satisfy the ‘the ten hours’ test. This is the requirement that at least ten hours a week are spent personally engaged in commercial activities of the trade carried on with a view to earning profits from those activities.
HMRC point out specifically that they do not accept that reading scripts or medical journals, watching TV or DVDs etc are qualifying activities. As a result any trade loss that did arise in such cases would be subject to the sideways loss relief restrictions for non-active traders.
Finally HMRC point out that:
"Whenever arrangements have been entered into to obtain a tax reduction by way of sideways loss relief we will actively challenge these arrangements and the activities of individual participants and litigate, if necessary. We will also withhold repayments of tax resulting from claims to sideways loss relief in appropriate cases."