Treasury closes factoring loophole

The government has moved to shut down tax avoidance schemes that exchange
future income streams for an up front lump sum to create tax advantages.

In rulespublished and effective from today, the government said it would be
seeking to prevent companies receiving lump sums in exchange for expected future
income from their assets.

The lumps sum is treated as either a capital gain, or not taxed at all, while
the payments are claimed not tbe taxable, or even tax deductible.

A spokesman for HMRC said the move might be likely to be used by property
companies. The government has declined to put an estimate on the effect of the
move, though it is thought that such structures could have allowed companies to
avoid substantial amounts of tax.

In a sign of some softening on its view on avoidance, however, the government
is holding an ‘Open Day’ to deal with objections to the move and to ensure
innocent structures are not affected.

Related reading