CIOT: Will tax reliefs cap prevent self-employed offsetting losses?

The Chancellor of the Exchequer announced in today’s Budget that legislation will be introduced to apply a cap on income tax reliefs claimed by individuals from 6 April 2013, where the reliefs are currently unlimited.

Although the draft legislation is awaited it appears from the Budget papers that it will apply to all income tax reliefs that are currently uncapped. This would therefore appear to include genuine commercial losses made by a self-employed individual running an unincorporated business.

Andrew Gotch, Chairman of the CIOT’s Owner Managed Business Taxes sub-committee, commented:

“The CIOT appreciates that there has been public pressure upon the Government to ensure that those with high income cannot avoid tax by extensive use of tax shelters. However, introducing a cap on the amount of business losses that can be utilised in any one year would smack of being anti-business and mis-targeted at a time when businesses are trying to recover from the recession or expand.

“This would mean that a business that had losses of £100,000 brought forward from previous periods, eg. during the recession, and which made a profit of £100,000 during 2013/14 could only utilise £50,000 of the losses. It would seem inappropriate to charge tax on those small business owners, forcing them to continue to carry forward the balance of losses.

“The Government need to clarify whether this proposal includes loss relief for unincorporated businesses. We hope that they will ensure that it does not.”

Notes to Editors

Paragraph 2.3 of the Overview of Tax Legislation and Rates budget book states that for anyone seeking to claim more than £50,000 in otherwise unlimited reliefs, a cap will be set at 25% of income (or £50,000, whichever is greater).

The Chartered Institute of Taxation (CIOT) is a charity and the leading professional body in the United Kingdom concerned solely with taxation. The CIOT’s primary purpose is to promote education and study of the administration and practice of taxation. One of the key aims is to achieve a better, more efficient, tax system for all affected by it – taxpayers, advisers and the authorities.

The CIOT’s comments and recommendations on tax issues are made solely in order to achieve its primary purpose: it is politically neutral in its work. The CIOT will seek to draw on its members’ experience in private practice, government, commerce and industry and academia to argue and explain how public policy objectives (to the extent that these are clearly stated or can be discerned) can most effectively be achieved.

The CIOT’s 15,800 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’.