HM Revenue &
Customs’ overhaul of the tax break on sideways loss relief has sparked
concerns from firms.
Moores Rowland believed that the
changes would have a significant impact on many marketed tax products for the
purpose of financing films, technology and environmental projects.
Managing partner Fiona Hotston Moore, said: ‘This is an unexpected
announcement which will have significant impact on levels of investment in
partnerships to fund film, technology, environmental and potentially even
ordinary trading partnerships.The proposals will impact not only on future
contributions but those already made.’
The schemes which operate under UK GAAP are used by business partners to
offset losses in one area of a business, ie the film production
division against income generated in another area.
Martin Churchill of Tax Efficient Review, a specialist adviser, told The
Times: ‘I think they have done it now because contacts in the industry will
have warned them that sales of these schemes pick up in the last few weeks of
the tax year, and if they didn’t act now they would be in danger of losing £800m
Mike Warburton, senior tax partner at Grant Thornton, calculated that £300m
of investment in the carbon trading scheme, where industry can buy credits to
offset carbon emissions would also be lost,
Two proposals were announced, effective from 2 March 2007, which will impact
all partners who are not actively involved in a partnership. The first proposal
will prevent loss relief being given when one of the main reasons for
participation in the partnership is to generate a loss which can be set off
against other income.
Moores Rowland added that even where the relief is not prevented under the
first provision, the loss relief will be restricted to £25,000 per year, which
is significantly less than the losses forecasted by many product providers.
The changes could also mean that partners who have already entered into
partnerships before the announcement could receive significantly less loss
relief than they expected at the time of their contribution.
HMRC’s amendments have other far-reaching implications – the proposals may
also affect other partnerships where there is no tax motive but where one
partner provides finance whilst another provides knowledge. Unless the partner
providing finance works in the partnership for at least 10 hours per week on
average, then the relief available for any losses will be similarly restricted.
HMRC said it had imposed the changes to clampdown on blatant anti-avoidance
schemes, and any genuine movie industry scheme would not affected.
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