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Treasury closes factoring loophole

Alex Hawkes, Accountancy Age, 06 Jun 2006

Government moves to shut down business receipt structures that create tax advantages

The government has moved to shut down tax avoidance schemes that exchange future income streams for an up front lump sum to create tax advantages.

In rulespublished and effective from today, the government said it would be seeking to prevent companies receiving lump sums in exchange for expected future income from their assets.

The lumps sum is treated as either a capital gain, or not taxed at all, while the payments are claimed not tbe taxable, or even tax deductible.

A spokesman for HMRC said the move might be likely to be used by property companies. The government has declined to put an estimate on the effect of the move, though it is thought that such structures could have allowed companies to avoid substantial amounts of tax.

In a sign of some softening on its view on avoidance, however, the government is holding an 'Open Day' to deal with objections to the move and to ensure innocent structures are not affected.

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