HMRC have recently contacted those who have taken part in the GAAP partnership sideways loss relief scheme to advise that the settlement opportunity offered in January 2013 will now be withdrawn by 31 October 2014.
GAAP partnerships typically sought to create a loss through the write-off of expenditure or the value of rights or assets through Generally Accepted Accounting Practice. The terms offered by the settlement opportunity in January 2013 included:
- loss relief against other income will be allowed in an amount equivalent to an individual’s contribution to the partnership personally contributed as the cash contribution, less any element expended on unallowable fees (those spent on tax advice or circular funding arrangements)
- the balance of the loss claim will not be allowable
- loan interest will only be allowable to the extent that it represents the allowable expenditure paid out of the initial cash contribution
- any share of income attributable to the cash element of expenditure will be taxable in full
- any share of income attributable to the loan financed element will only be taxable in so far as it represents investment income over and above the return of the initial capital
The people offered the opportunity to settle were advised that as the schemes neared litigation, the chances of resolving the dispute by way of negotiated settlement would be considered less appropriate. Appeals in the cases of Inside Track Productions LLP, Ingenious Film Partners 2 LLP and Ingenious Games LLP will be heard by the First Tier Tribunal on 3 November 2014. The withdrawal date of 31 October 2014 therefore coincides with this.
Anyone who wishes to settle and take advantage of the terms previously offered should contact HMRC by 31 October with details of the cash contribution made to the partnership.
In the event that the cases listed above are won by HMRC, anyone who has not already settled will almost certainly receive a follower notice and accelerated payment notice from HMRC. The implications of this are that the tax in dispute will become payable within 90 days of the accelerated payment notice having been issued and a potential penalty of up to 50% of the tax due should there be a failure to comply with the follower notice. People that take advantage of the settlement opportunity are unlikely to be faced with a penalty.
Based on the approach taken by HMRC in earlier hearings involving marketed tax avoidance schemes it is likely that HMRC will appeal any decision that goes against them and this will not be the end of the litigation process. Anyone wishing to litigate should consider this when deciding whether they wish to continue with their appeals.