Government ‘will not tolerate’ tax avoidance

The Treasury has issued its strongest yet commitment to attack tax avoidance and evasion in a Commons statement cracking down on a series of avoidance schemes.

Financial secretary Stephen Timms said: "This Government will not tolerate tax avoidance or tax evasion in any form, and will act promptly to tackle both of these."

He attacked "a minority who continue to seek ways to avoid paying their share ", adding: "This is unacceptable. It is unfair on the majority of taxpayers, undermines fiscal sustainability, and reduces funding for public services."

Timms announced a series of changes to legislation to counter avoidance schemes notified to HMRC with immediate effect, among them a new general rule " to prevent sideways loss relief being given where the loss arises from arrangements and a main purpose of the arrangements is to obtain a tax reduction by means of sideways loss relief".

Timms pledged the test would not impact on genuine loss-makers who have not entered into avoidance arrangements but said the government "will not tolerate avoidance schemes designed to exploit sideways loss relief rules".

He said it had recently become aware of a contrived and aggressive avoidance scheme that seeks to generate losses in a professional partnership for offset by users of the scheme against their other income or capital gains by way of sideways loss relief which rely on the creation of losses through a series of arrangements that HMRC say are established for the purposes of tax avoidance.

Legislation is also being introduced with immediate effect to crack down on:

* the use of unauthorised unit trusts to avoid restrictions on double tax relief and to generate "repayments" of tax which the UK exchequer has not received; and

* companies using manufactured overseas dividends, known as MODs, instead of real dividends in order to work around the anti-avoidance rules in double taxation relief legislation.

And regulations have been introduced to stop UK manufactured interest payments being used to avoid tax under rules relating to controlled foreign companies by artificial creation of double taxation relief and stop virtually the same scheme using MODs.