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10 things the taxman thinks you should know about tax avoidance

For those who may be new to the terminology, it has long been recognised that “tax evasion” is illegal, and can result in penalties, fines and imprisonment.  By contrast, “tax avoidance” is legal.  However the term has usually been adopted to cover those types of schemes which involve saving tax in ways which were never intended by legislation.

A few years ago it became clear that the HM Revenue & Customs (HMRC) were fed up with having to continually amend legislation to counter unintended tax avoidance.  Meanwhile, millions of pounds continued to be lost by the Exchequer every year, until each new scheme devised by tax planners was closed down in some way.  The word was out in Treasury circles that it was time to change the culture.

This has involved a number of steps, including:-

  • The requirement to register avoidance schemes which match certain criteria.
  • A well-orchestrated press campaign, naming and shaming various celebrities who have used tax avoidance schemes.
  • The introduction of the General Anti Avoidance Rule in legislation.
  • Giving the taxman the right to demand money up front where there is an argument over whether a scheme works or not.

Some might say the latest foray amounts to out-and-out scaremongering.  Last month, HM Revenue & Customs published “10 things a tax avoidance scheme promoter won’t always tell you”.  The bullet points are:

  1. “Most schemes don’t work.
  2. “You could end up paying much more than just the tax you’re trying to avoid.
  3. “You may have significant legal fees to pay.
  4. “You could face criminal conviction.
  5. “You could face publicity as a tax avoider.
  6. “Your scheme is never HMRC approved.
  7. “You could be marked out as a high-risk taxpayer.
  8. “HMRC is likely to beat your scheme in court.
  9. “The risk is normally all your own.
  10. “You’ll have to pay the tax up front anyway.”

Whether we agree with all these statements is not really the point.  What is clear is that the Revenue want to put a message across:  If you get involved in organised tax avoidance schemes, they’re coming to get you!

To reassure you, prudent tax planning, making use of recognised reliefs, is not under attack.  Moving a little along the scale, there are areas where we and HMRC do not always agree, and they are content to debate these with us from time to time.  However, what they’re trying to put a stop to is packaged artificial avoidance schemes, usually marketed to high net worth individuals by specialist providers.

Our position is that some of these packaged offerings may be entirely legitimate and may work.  Others are not/do not.  But in this climate, all should be approached with extreme caution.  If in doubt, talk to our planners about any suggestions which may come your way, and we will be happy to advise you.

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