Is Tax Avoidance Legal? What you must know!

Is tax Avoidance Legal?

Many people are confused about tax mitigation and tax planning, believing it to be illegal following the high profile “naming and shaming” of Jimmy Carr. 

Jimmy Carr famously said, “Now I know why they are called tax returns because 99% of mine does”. Then he wondered why the Prime Minister singled him out.  He may be a great comedian but he is clearly lacking business sense.

Tax avoidance is legal and tax evasion is illegal however taxpayers often confuse the terminology and this confusion has been encouraged by
the HMRC who has introduced the word “immoral” to describe some tax
avoidance schemes. 

What Is tax Avoidance?

Tax avoidance is the legal utilisation of the tax legislation to favour one’s own advantage, to reduce the amount of tax payable.  It is about
organising your affairs in the most tax efficient way, but some may
regard it as the dodging of one’s duties to society.

Is it the right of every citizen to structure one’s affairs in a
manner allowed by law or to pay more tax than what is required out of a
sense of morality?  Attitudes vary from approval through neutrality to
outright hostility depending upon the steps taken in the avoidance
scheme, or the perceived unfairness of the tax being avoided.

How Can You Minimise Your Tax Bill?

Over the past thirty years tax avoidance schemes exploded and were
mostly the prerogative of the super rich.  Large firms like PCW and
KPMG employed expensive tax barristers to find loopholes and create
schemes they called tax mitigation schemes.  This all changed in 2002
when Blair put an ultimatum to firms like PCW threatening them with the
loss of lucrative Government contracts. Most of the tax practitioners
employed by these large firms were made redundant and set up their own
tax boutiques and now the HMRC have a much bigger problem on their
hands trying to police the plethora of different schemes that are now
available to the taxpayer and have adopted a new way of attacking them
by pricking taxpayer’s consciences using the word “immoral”. Currently
there are over 2400 schemes which are registered with the HMRC under
DOTAS (Declaration of Tax Avoidance Schemes) and each one has it’s own
individual number.  This multiplicity of schemes has put the UK
taxpayer in the driving seat because each one comes with QC approval
and each one has to be challenged individually by the HMRC. But the HMRC in the latest Budget is employing an additional 2,500 tax inspectors to investigate these schemes and so it is important that you seek “risk averse” advice.

What Areas Are High Risk In Tax Planning?

Recent case law has focused on schemes where tax deductions are claimed using leveraged finance or where there is the “circular movement” of
money or where self-canceling transactions are used or where there are a series of steps that have no obvious commercial purpose. There are many much safer schemes that avoid these pitfalls.

At Castle Heslop we work with a group of 300 qualified chartered accountants who have researched these schemes and have split them out into the good, the bad and the ugly and we are offering a complimentary “1 to 1” with an ex HMRC tax inspector who is well versed in many of these schemes and can tailor make the strategy for you according to your circumstances and risk profile.

For more information on our, London based, tax clinics please call Debbie Danahar on 020 7831 8666 to book your no obligation place. 

Don’t pay more tax than you legally need to!