The new HMRC guide on tax avoidance schemes
The majority of Limited Company contractors will generally steer clear of avoiding tax for the simple reason that it just seems safer to do so. However, a few may be attracted by the idea of saving large amounts of tax in a seemingly ‘safe’ way and may find themselves tempted by one of the many schemes on offer to do this. This can potentially be extremely risky though. If the scheme is deemed as being Tax Avoidance it’s worth remembering that HMRC will never approve it. Additionally, as a director of your Limited Company you could be held personally liable for the company’s tax and other debts if the company engages in tax avoidance which results in losses for the company. So, it pays to think very carefully about the management of your tax affairs and to get professional tax advice from your contractor accountant to ensure that you’re genuinely staying within HMRC’s rules.
Because tax avoidance can carry such heavy penalties and so many have been caught out in this area, HMRC provides Tax Avoidance Scheme guidelines to help.
What kind of activities amount to Tax Avoidance?
As long as you make legitimate use of the tax saving options available, management of your tax affairs to gain maximum tax efficiency is not a problem. Doing things like saving in a tax-free ISA (Individual Savings Account) or claiming capital allowances on assets you use in your business is completely legitimate and acceptable. What is not acceptable is using tax saving options in ways that were not intended or bending the rules to create tax savings where really they’re not applicable.
What do I need to look out for?
Generally if the scheme on offer sounds too good to be true it’s worth digging deeper to find out what’s really going on. No matter how attractive the sales pitch might be, Tax Avoidance is breaking the law so it’s better to be safe than not only sorry, but potentially deeply out of pocket, or at worst at risk of a prison sentence.
HMRC lists a number of ‘warning signs’ to look out for to help you spot potential Tax Avoidance Schemes including:
• the tax benefits or returns are out of proportion to any real economic activity, expense or investment risk
• the scheme involves artificial or contrived arrangements
• the scheme involves money going around in a circle back to where it started
• the scheme promoter either provides any funding needed to make the scheme work or arranges for it to be made available by another party
• offshore companies or trusts are involved for no sound commercial reason
• a tax haven or banking secrecy country is involved
• the scheme contains exit arrangements designed to side-step tax consequences
• there are secrecy or confidentiality agreements
• upfront fees are payable or the arrangement is on a no win/no fee basis
• the scheme has been allocated a Scheme Reference Number (SRN) by HMRC under the Disclosure of Tax Avoidance Schemes (DOTAS) regime
HMRC also publishes details on their website of schemes which they are aware of and have concerns about.
What can I do if I’ve already joined a potentially suspect scheme?
Contact HMRC’s Anti-Avoidance Group on 020 7438 6733. Alternatively, email them using their online form.
Getting it right the first time with your tax management
At Intouch we give all our clients access to their own Personal Accountant. They fully understand the most tax efficient options available to efficiently maximise your take home income while fully complying with HMRC rules.
This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.