The Treasury has moved to block a loophole in business tax relief that could have cost the exchequer up to £1bn.

Changes have been made to the finance bill that will stop companies using a scheme to claw back taxes paid when they were profitable by ‘artificially engineering a deemed cessation of trading’, reported the Financial Times.

Last week, financial secretary Stephen Timms told MPs that HMRC believed the scheme ‘is capable of being used by a large number of companies with the consequent risk of a significant loss of revenue’.

Without the amendments to the bill, companies would have been able to reorganise in order to make themselves eligible for terminal loss relief, which allows companies to offset losses made in the year before a business closes against profits made in the previous three years.

Further reading:

Budget 09: Special report