By Steven Pinhey, Tax Director
As part of its ‘Dealing with HMRC’ guidance, HMRC this month published its view on Tax Avoidance, what it is and how it can be identified.
HMRC see tax avoidance as involving bending the rules of the tax system to gain a tax advantage that Parliament never intended by operating within the letter, but not the spirit, of the law. They consider that it often involves contrived, artificial transactions that serve little or no purpose other than to produce this advantage.
Whilst this is HMRC’s view on tax avoidance, it is worth understanding what they see as being the warning signs for taxpayers. These are:
- It sounds too good to be true
It probably is. Some schemes promise to lower your tax bill for little or no real cost. They will say you do not have to do much more than pay the scheme promoter and sign some papers.
- Pay in the form of loans
Some schemes designed for contractors involve giving you some or all of your earnings in the form of a loan that you’re not expected to pay back. It’s diverted through a chain of companies, trusts or partnerships and you’ll be told this is to save you tax.
- Huge benefits
The benefits of the scheme seem out of proportion to the money being generated or the cost of the scheme to you. The scheme promoter will claim there’s very little risk to your investment.
- Round in circles
The scheme involves money going around in a circle back to where it started, or some similar artificial arrangement.
- HMRC has given it a Scheme Reference Number (SRN)
This is where HMRC has identified the arrangement as having the hallmarks of tax avoidance and are investigating it. You will have been given an SRN by your promoter and will have included it on your tax return. Having an SRN doesn’t mean that HMRC has ‘approved’ the scheme. HMRC does not approve any tax avoidance schemes.
Not all tax planning is avoidance and there are lots of ways in which you can reduce your tax bill without engaging in aggressive tax avoidance schemes. Please talk to our tax partners Clare Munro (firstname.lastname@example.org) or Phil Moss (email@example.com) if you would like to discuss ways in which you can reduce your tax bill on 0207 490 7766.
If you are worried about tax advice that you have already been given or are concerned that HMRC may view that advice as tax avoidance, Steven Pinhey our Head of Tax Disputes and Resolutions would be happy to discuss your case with you. Steven can be contacted on firstname.lastname@example.org.