The Government has come down hard on the latest tax avoidance scheme, with a change in law with immediate effect.

The legislation blocks a tax avoidance scheme involving post-cessation trade relief, after the Government heard of an avoidance scheme that seeks to generate post-cessation trade relief for set-off by users of the scheme against their other income or capital gains.

The relief was designed to allow a person to claim a deduction in their income tax calculation for certain payments and bad debts arising after a trade, profession or vocation has ceased. But according to reports, artificial trading companies were being set up in tax havens to take advantage of the relief.

The law changed with immediate effect on 12 January 2012, and the legislation will be in the Finance Bill 2012. Commenting, exchequer secretary to the Treasury, David Gauke said:

"Tackling tax avoidance is a priority for the Government. It is unacceptable, at a time when we are trying to bring down the deficit, that there are those who try to avoid paying the tax they owe. We have acted quickly to prevent the use of this particular scheme and we will not hesitate to close down other avoidance schemes as we become aware of them."