HMRC has published the terms of the settlement opportunity open to participants in certain tax avoidance schemes which seek to exploit certain reliefs and allowances for sole traders. This is the fourth settlement opportunity revealed by HMRC.

Sole trader schemes are those which have sought to create a loss through a self-employed trade that would involve substantial expenditure said to be incurred in the trade, or a write-off of expenditure or the value of rights or assets through Generally Accepted Accounting Practice.

The terms of settlement are as follows:

• Loss relief against other income will be allowed in an amount equivalent to your contribution to the sole trader scheme personally contributed by you as the cash contribution, less any element expended on unallowable fees. Unallowable fees are those spent on tax advice or circular funding arrangements. HMRC will tell you if HMRC believe a disallowance for fees is needed.
• The balance of the loss claim will not be allowable.
• Loan interest will only be allowable to the extent that it represents the allowable expenditure paid out of the initial cash contribution.

Any share of income attributable to the cash element of expenditure will be taxable in full.

Any share of income attributable to the loan financed element will only be taxable in so far as it represents investment income over and above the return of the initial capital.

As part of the phased roll out of the settlement opportunity HMRC has written to individuals who have taken part in sole trader schemes.