Icebreaker Tax Arrangement to Receive Consequential Amendments

To set our bearings, let’s first revisit what the Icebreaker scheme was.

Designed as a strategy for individuals investing in partnerships that claimed to trade in the creative industries, the partnerships generated losses, which the individuals could then offset against their other taxable income, thus reducing their tax liability.

HMRC’s campaign against tax avoidance eventually led to the Icebreaker scheme being challenged in court and was subsequently defeated, with the tribunal finding that the primary purpose of these investments was to secure tax relief.

As a result of the tribunal decision, HMRC are now preparing to issue consequential amendments, altering the investors’ tax statements historically to account for the restriction in losses.

Understanding Consequential Amendments

A consequential amendment refers to a change that is necessary in a tax return for a period. When an investigation into a company’s or individual’s tax affairs for a specific period is concluded, the findings can have a ripple effect, impacting returns from other periods. This is where it is essential to review the consequential amendments line by line.

The Procedure for Implementing Consequential Amendments

Upon the conclusion of an enquiry, HMRC will issue a partial or final closure notice. This notice will detail the conclusions of the enquiry and the impact on the tax return of the period under investigation. However, crucially, this notice does not directly amend the returns for any other periods — that action is taken separately.

To elucidate with an example, consider a company that has reported a loss in one tax year and carried forward this loss to offset against profits in a subsequent year. Should an enquiry conclude that there was actually no loss, or even a profit, the subsequent period’s return would need to be amended accordingly.

Limitations on the Use of Consequential Amendments

It is imperative to understand that not all amendments to other years’ returns can be treated as consequential. HMRC restricts the use of amendments to those that are a direct consequence of the findings stated in the closure notice.

Our Role as Your Tax Adviser

WTT’s expert litigation team are discussing options with those impacted by the Icebreaker decision along with possible judicial routes remaining. At WTT we have many years of experience in managing these complex situations. Our expertise ensures that when an enquiry leads to a chain reaction of necessary amendments, these are handled meticulously. If you would like to talk through your options and the matters at hand, please reach out today to schedule a call.

Contact us today at info@wttconsulting.co.uk or call us on +44 (0)20 3468 0000 for more information.

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