Personal Tax Avoidance - government taking action to prevent artificial avoidance scheme

HMRC has become aware of an artificial and aggressive avoidance scheme that seeks to abuse tax reliefs available for employment-related liabilities incurred by employees and former employees.

The government does not accept that these highly contrived arrangements have the effect that is sought, however to put the matter beyond doubt a written ministerial statement will be made to Parliament tomorrow (Tuesday 13 January 2009) confirming that the government proposes to introduce appropriate legislation in the 2009 Finance Bill that will be effective from today, 12 January 2009. This legislation will prevent tax deductions being allowed where liabilities relating to an employment are incurred by employees and former employees for the main purpose of the avoidance of tax.

The legislation will not affect genuine cases where tax avoidance arrangements are not involved. Details of this measure are contained in a Technical Note.

Draft legislation will be published as soon as possible.