Fraudulent claimants threaten legitimate allowances

The Government announced that it would be clamping down on the ‘aggressive’ tax avoidance schemes being used by some large firms, who rent machinery and then claim excess tax relief.

Businesses are able to claim capital allowances when they enter into a long funding lease for their buildings and machinery.

However, some firms are attempting to claim back twice their entitled tax relief by entering into, “contrived, circular transactions involving the sale, leaseback and reacquisition of their plant and machinery” over a period of a few weeks.

In a written statement to MPs, Treasury Exchequer Secretary David Gauke said: Legislation, which will have effect from today (Wednesday 9^th March), will be introduced in Finance Bill 2011 to confirm that lessees engaging in transactions of this type are only entitled to tax relief up to the actual amount of their expenditure on plant or machinery.”

He also explained that this legislation would be forcibly enforced so as to “protect future losses to the Exchequer”.

However, whilst some firms are over-claiming on their capital allowances, a whole host of others are completely unaware that they are entitled to claim anything. Consequently, they may be missing out on large sums of money.

This article was written by Katie-Jill Rowland