In 2015 HMRC announced a disclosure window for users of sideways loss relief schemes. These involve the creation of a loss used to reduce taxable income. 

This is a freeview 'At a glance' guide to disclosure and Sideways loss relief schemes.

These schemes have typically offered separate opportunities for different entities: sole traders, UK GAAP companies, UK GAAP companies and users of film investment schemes. Initially, HMRC guidance covered each of these options, this has since been amended into general guidance about Tax avoidance schemes.

HMRC has had its sights set on heavily leveraged investment schemes, typically using a non-recourse or limited recourse loan, giving this example:

An individual might ‘invest’ £200,000 of his own money in the scheme, which is then leveraged by an £800,000 loan. The £1,000,000 'invested' would then invariably go bad, giving rise to a loss of £1 million. For a 40% taxpayer able to utilise the loss, he would in theory receive £400,000 worth of tax relief, leaving him in profit in cash terms because the loan would not need to be repaid in the circumstances.

In most schemes, the investment does not actually fund any trading activity and there is a circular flow of loan funds.

HMRC initially won a significant case against this type of arrangement in Tower MCashback [2011] UKSC 19, and are understood to consider any arrangement involving a non-recourse loan to be ineffective.


The opportunities’ terms are common:

  • Loss relief will be allowed in respect of the actual contribution made by the entity and restricted for any non-allowable fees paid (e.g. to a promoter).
  • The loss arising on the money loaned will not be allowable.
  • Loan interest will be allowable to the extent it relates to the personal cash contribution.
  • Income arising from the expenditure attributable to the cash contribution will be taxable.
  • Income arising from the expenditure attributable to the loan contribution will only be taxable to the extent a profit is realised over the initial investment.

Use of the disclosure facilities should see matters settled and finality achieved without the need for recourse to criminal proceedings, however, identification of anything that fits into HMRCs criminal investigation policy or fraud procedures will negate any use of the opportunity.


It would be expected that HMRC will serve Accelerated Payment Notices on taxpayers who it can identify as using Sideways Loss Schemes. Perhaps the idea is to see if scheme users can be urged to settle first and then to serve APNs later on those who do not take up this opportunity.

Sideways loss schemes of the type illustrated above are no longer so popular following the Limit (cap) on unlimited income Tax relief.

External link

Tax avoidance: an introduction

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