Overview
Tax avoidance encompasses moulding the tax system rules to attain tax advantage. It involves a lot of artificial transactions that usually have no other purpose other than taking advantage of the tax system. Usually tax avoidance schemes do not merely work in a simple manner and can result in paying more than the tax amount actually payable. Below mentioned are some of the cautionary signs that signal if an individual is involved in a tax avoidance scheme
- Certain schemes assure an individual to decrease the tax bill for a minimum price or no price. The scheme usually would only require an individual to sign a few papers and pay the scheme promoter
- Certain schemes are designed specifically for contractors and includes paying a person in the form of a loan which an individual is not expected to pay back. This amount is usually routed through partnerships or trusts, or through a chain of companies and will be positioned as a tax saver scheme
- The remunerations of the tax avoidance scheme give the impression that money generated is out of proportion. The scheme promoter will project the scheme to be of very little risk to the investor
Current rates of National Minimum Wage
Currently, there are a few tax avoidance schemes which the HM Revenue and Customs (HMRC) considers are being used to escape paying the billed tax due. HMRC has identified certain schemes which have characteristics of tax avoidance and the HMRC needs to begin investigation them. In case the HMRC finds out that a tax avoidance scheme is being used, it will:
- Charge fines where applicable
- Look for complete payment of any payable tax, along with interest payment
- Open an investigation into the tax affairs
Along with HMRC’s direction on understanding tax avoidance, it aims to caution against adopting tax avoidance schemes. Below mentioned are schemes HMRC is aware of:
| Date | Scheme |
|---|---|
| 5-Aug-10 | Avoidance using Gift Aid |
| 23-Aug-11 | Avoiding Income Tax on pay |
| 4-Nov-13 | Business Premises Renovation Allowances schemes |
| 14-Sep-16 | Capital Gains Tax: Entrepreneurs’ Relief tax avoidance scheme |
| 7-Jul-16 | Contractor tax: loan schemes can cost you more |
| 5-Aug-10 | Contrived employment liabilities and losses |
| 25-Oct-17 | Disguised remuneration trust schemes: misleading advertising |
| 29-Sep-17 | Disguised remuneration: a Supreme Court decision |
| 17-Mar-17 | Disguised remuneration: job board avoidance scheme |
| 10-Aug-17 | Disguised remuneration: re-describing loans |
| 2-Dec-17 | Disguised remuneration: schemes claiming to avoid the new loan charge |
| 14-Feb-17 | Disguised remuneration: tax avoidance using annuities |
| 3-Feb-16 | Employee Bonus Schemes: Growth Securities Ownership Plan tax avoidance and similar schemes |
| 27-Dec-13 | Employee bonuses: tax avoidance scheme involving Restricted Securities |
| 5-Aug-10 | Employer-Financed Retirement Benefits Scheme |
| 29-Jun-15 | Employment Allowance avoidance scheme: contrived arrangements caught by existing rules |
| 17-Apr-13 | Employment Benefit Schemes using fettered payments |
| 20-Jul-13 | Gift Aid with no real gift |
| 5-Aug-10 | Gift Aid with no real gift |
| 6-May-16 | Gold bullion schemes |
| 5-Aug-10 | Goodwill: companies acquiring other businesses, carried on prior to 1-Apr-2002 by a related party |
| 23-Oct-15 | Interest Relief avoidance schemes |
| 5-Aug-10 | Investments to obtain trade loss reliefs - 'sideways loss relief' |
| 29-Mar-18 | Managed service company legislation |
| 5-Feb-16 | Misleading claims from tax avoidance scheme promoters |
| 5-Aug-10 | Pay-as-you-earn (PAYE) and National Insurance (NI) contributions, Inheritance Tax and Corporation Tax: using trusts and similar entities to reward employees |
| 5-Aug-10 | Pensions schemes: artificial surplus |
| 14-Feb-13 | Plan Green - car benefit scheme |
| 26-Nov-12 | Property business loss relief schemes |
| 11-Jan-13 | Share Loss Relief schemes |
| 11-Jan-13 | Stamp Duty Land Tax avoidance |
| 5-Aug-10 | Stamp Duty Land Tax avoidance |
| 20-Aug-15 | Stamp Duty Land Tax avoidance: no human rights breach in avoidance challenge |
| 12-Jun-13 | Stamp Duty Land Tax avoidance: update |
| 12-Jun-13 | Stripped bond tax avoidance schemes |
| 6-Nov-12 | Taxing the rewards for work done for a UK based employer |
| 31-Aug-16 | Transitional relief on investment growth: withdrawal date changed |
| 5-Nov-13 | Value added tax (VAT) contrived schemes used to obtain exemptions for sporting or educational training/supplies |
| 5-Aug-10 | Value added tax (VAT): artificial leasing |
| 26-Jun-17 | Value added tax (VAT): supply splitting tax avoidance schemes |
| 14-Feb-18 | Contractor loan schemes: misleading advertising |
| 21-Mar-18 | Stamp Duty Land Tax avoidance: misleading advertising |
If an individual enters into a tax avoidance scheme
In case an individual is involved in a scheme which is pertinent to tax avoidance then HMRC will completely probe the tax activities, and may also:
- Require an individual to pay the tax he/she is trying to avoid upfront: An individual may be given a tax bill known as an APN (accelerated payment notice). This is a prerequisite to pay the entire amount of National Insurance (NI) contributions or tax which is computed by HMRC as being the payable amount – this can be paid upfront or inside 90 days
- Take legal action: An individual might end up in court if he/she does not pay the National Insurance (NI) contribution or tax payable. It must be noted that basis the historical stats gathered, HMRC wins approximately 8 out of 10 tax avoidance cases heard in the court. If an individual loses a case, he/she can face hefty bills, with permissible costs which are in addition to the tax owes, growing interest and penalties
- Treat an individual as a high-risk taxpayer: This implies that HMRC will meticulously examine all of the tax activities in future, and not just the tax avoidance scheme
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Author
Sumit Agarwal (ACMA ACA India), the Managing Partner of DNS Accountants is a highly respected accountant with expertise in helping owner- managed businesses.
