Small Business: Screw tightens on tax avoidance schemes by firms and individuals

The Chancellor continued his crackdown on tax avoidance, announcing another raft of measures to close tax loopholes exploited by both companies and individuals.

At the heart of yesterday's announcements was the launch of an initiative to grant HM Revenue & Customs the power to investigate more swiftly where it believes disclosure rules have not been complied with.

Other initiatives included a move to stop contract workers using so-called "Managed Service Companies" to mitigate their tax liabilities. The scheme is mainly used by those working in the IT industry, but also by teachers and nurses, and involves setting up a company which allows them to receive their wages as a dividend. This is taxed at a lower rate than regular earnings.

Another crackdown on individuals included a move to stop investors using life insurance policies and commission arrangements to avoid tax on investment income.

On the corporate side, the Government moved to stop companies buying in capital losses to offset against income. In particular, it said it wanted to prevent businesses buying the losses of corporate members of the Lloyds' of London insurance market, who plan to stop underwriting.

New rules have also been introduced to clamp down on companies securing corporation tax discounts by paying their staff through employee benefit trusts.

Stephen Herring,a tax partner at accountants BDO Stoy Hayward, commented: "As expected, the Chancellor has tightened the screw on a mixed bag of perceived tax avoidance."

The Government began clamping down on tax avoidance schemes three years ago, and plans to finish its programme of reforms by next year. Ruth Dooley, a tax adviser at the accountants Grant Thornton, said companies are now obliged to register any new schemes which aim to mitigate their tax position. As a result, the past two Budgets and pre-Budget reports have seen a series of legislation clamping down on any new initiatives.