Posted Tax Planning and Avoidance byin
It has long been the case that it is perfectly legal to avoid taxes. Much is regularly made by the government about the immorality of aggressive tax planning but what is that? That, it appears, depends on your point of view. Government, which is hungry for cash to pay off its deficits has a different view to a company director, for example, who may see it as a much needed way to improve cash flow whilst staying within the law.
The provision of tax planning products or schemes is an unregulated market. There are no rules, codes of practices, ethical standards or anything else that can tell you if a piece of tax planning works, is likely to work, or is priced fairly by those putting it forward. There are no regulations on promoters to consider whether any particular tax planning product is suitable for your needs or what the downside risks are (inevitably the downside risk is that you may be liable to the tax in the future with interest and potentially penalties as well). So if you are thinking of using any of these schemes, you should ask a lot of questions.
- Must the scheme be disclosed under DOTAS? (Disclosure of Tax Avoidance Schemes) and what are the consequences if it is? (Ask about Accelerated Payment Notices)
- How do I know that the scheme even works? Is there an opinion from a tax expert saying that it does?
- Can I or my representative look at the opinion? Beware of promoters of schemes who will not let you do reasonable due diligence.
- Is the scheme caught by the GAAR (That’s the General Anti Avoidance Regulations – not the small knitted Bear with a with a similar name owned by my daughter!)?
- What are the consequences if the loopholes the scheme relies on are closed?
- Will the promoter protect your from an HMRC challenge to the scheme and what are their resources for doing so?
- How does a scheme for one tax interact with another tax? For example, a great income tax scheme may be inefficient for CGT or inheritance tax. Has someone thought about that?
- What are the interest and penalty consequences of the scheme not working
Most advance tax planning schemes reduce the tax liability to zero with the true “cost” of the scheme being the promoter’s fees.
Advanced tax planning is certainly not for everyone but there are some well researched tax planning products on the market for contractors, limited company directors, directors with overdrawn director’s loan accounts, barristers and heathcare professionals.