HMRC attempts to deny genuine trading loss relief claims

Here is how our Tax Investigations & Dispute Resolution team helped two clients obtain sideways relief claims that had been challenged by HMRC. Find out how our experts resolved the issues after unsuccessful negotiations by both clients’ accountants.
In case A, following a significant redundancy payment and contractual restriction of carrying on business in the same sector, client A diversified his business interests and commenced trading in the hiring of storage containers. Clearly significant investment was made in acquiring the containers resulting in losses being incurred in the first year of trade. Given this was the same tax year in which the redundancy payment had been received, taxed under PAYE, a sideways loss relief claim was made. This was challenged by HMRC who refused to accept that a significant proportion of the client’s time had been spent on his new business, and therefore the qualifying conditions to make the claim were not met.
In case B, a full-time employed City worker had made losses on a self-employment business that was carried on around their main employment. The losses were substantially due to film production costs in making fitness videos. These losses were relieved sideways against the employment tax deducted under PAYE. This was challenged by HMRC who refused to accept that the business was commercial, carried on with a view to the realisation of profit.
Despite the clients’ accountants’ best efforts, in both cases HMRC had refused to accept their representations and were therefore seeking payment of significant tax, interest and penalties. 
On our appointment on both cases we obtained an abeyance in HMRC's action while we conducted a full review of the validity of the claims plus the enquiry correspondence to date. Following this, we set out in writing our views that both claims were indeed valid and why we believed HMRC’s view was flawed. Our arguments were both thoroughly researched and well presented. 
In both cases, HMRC conceded its position accordingly – all in one letter. This was great news for both clients and their accountants and highlights the impact specialists can have on cases where such correspondence has become protracted.
Buzzacott’s Head of Tax Investigations and Dispute Resolution, Mark Taylor comments on these cases:
“I have seen a growing number of sideways relief cases where HMRC’s initial approach is to deny the claim. There now seems to be a culture of challenging and refusing genuine loss claims solely with a view to obtaining or denying repayments of tax. In cases where HMRC caseworkers do not interpret legislation or HMRC guidance instructions correctly we should not hesitate to challenge HMRC’s decisions”.

For more information or advice please contact:

Mark Taylor
Head of Tax Investigations and Dispute Resolution
T | +44 (0)20 7556 1243
E |
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