Share Loss Relief schemes (Spotlight 15)
Published 11 January 2013
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1. Tax Avoidance Share Schemes
HM Revenue and Customs (HMRC) is aware that several highly artificial tax schemes are currently being marketed to individuals. The schemes claim to create capital losses that reduce the amount of tax payable on earnings from employment or other income. HMRC does not believe that any of these schemes work under current legislation or that any tax relief is due.
In these schemes, an individual subscribes for shares issued by a company. Subscribers pay only a small proportion of the nominal cost of the shares themselves, with the balance met by ‘loans’. If the company fails, they either:
- are not required to repay the ‘loans’
- repay them out of funds provided to them in a non-taxable form
The company is said to be carrying on a high-risk commercial activity. However, that activity has little or no realistic prospect of success. Shortly after the company issues the shares, its activities are declared to have failed. This is so the shares become negligible in value or they are sold for very little. The individuals make claims to set the resulting capital losses on the shares against their taxable income.
2. What you can expect from HMRC
Where an individual uses one of these schemes, HMRC will open an enquiry into the return and will not repay any tax refund claimed. If information is concealed, incorrect or misleading information is provided, HMRC may also seek civil penalties. In appropriate cases HMRC will consider criminal prosecution. A number of these schemes are currently under criminal investigation by HMRC.