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The government is taking action to block tax avoidance under certain artificial avoidance schemes.

Over recent months HMRC have become aware of an artificial and aggressive avoidance scheme that seeks to abuse tax reliefs available for employment-related liabilities incurred by employees and former employees.

The government does not accept that these highly contrived arrangements have the effect that is sought, however to put the matter beyond doubt a written ministerial statement has been made in Parliament confirming that the government proposes to introduce appropriate legislation in the 2009 Finance Bill that will be effective from 12 January 2009.

Broadly, the new legislation will prevent tax deductions being allowed where liabilities relating to an employment are incurred by employees and former employees for the main purpose of the avoidance of tax.

The legislation will not affect genuine cases where tax avoidance arrangements are not involved.

Details of the new measure are contained in a HMRC Technical Note, which can be viewed on the HMRC website at http://www.hmrc.gov.uk/news/pta-technote.htm.