On 10 July 2018, HMRC published a policy paper on “profit fragmentation”. The government intends to tackle tax avoidance schemes which move profits outside the charge of UK tax, often by using offshore trusts and companies, by introducing new rules which will add such profits to the profit of the UK trade.

Draft legislation has been published for technical consultation and the changes are intended to come into force from April 2019.

Where it is “reasonable to conclude” that the arrangements were entered into to obtain a UK tax advantage, HMRC will be able to issue a counteraction notice to remove that advantage – essentially by adding the alienated profits to the UK resident party.

HMRC has listened to concerns and the proposal requiring payment of any disputed tax upfront has been abandoned. It is claimed that the proposals will affect up to 10,000 taxpayers.

A copy of the policy paper can be viewed here.