HMRC recently published a warning for people thinking about tax avoidance schemes – ‘Tempted by Tax Avoidance?’ A small minority are lured by the promise of large tax savings for very little effort or cost but they are not aware of the risks involved.
By deploying teams of tax, legal and accountancy experts, HMRC will aggressive challenge these schemes. It is very easy to be tempted by these schemes, but contractors should think carefully about the costs, the disruption of having to deal with enquiries from HMRC and the potential litigation and uncertainty over the outcome they may face as a result.
How can you tell if it’s avoidance?
As a contractor working through your own limited company, you are able to structure your affairs in the most tax-efficient way possible. There are a number of ways you can legitimately reduce the tax liability of your business, such as paying into a pension scheme for example.
There are a number of warning signs that you should look out for when looking at tax saving schemes.
Too good to be true?? It probably is!
A sales pitch which promises results that are too good to be true, such as ‘take home up to 85% of your income’, normally points to a tax avoidance scheme. Instead of reducing the amount of tax you pay, you run the very real risk of being hit with a tax enquiry and a dispute which could go on for years.
Not only will you pay fees to the ‘promoter’ to be part of this scheme, you may well end up having to pay large disputed tax amounts, PLUS interest, along with substantial penalties. Furthermore you will be placed on the tax payers blacklist, which will severely affect your future credit rating.
As part of their sales pitch, the promoters will assure you that your money is safe and you are on to a ‘sure-fire winner’ – before committing to any type of scheme make sure you have read through the claims and that you understand the small print!!
Same warning signs…
Think twice when you see any of the following:
- The tax benefits or returns are out of proportion to any real economic activity, expense or investment risk
- The scheme involves arrangement which seem very complex
- The scheme involves ‘artificial or contrived arrangements’
- The scheme involves money going around in a circle back to where it started
- The scheme promoter 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
HMRC NEVER approve tax avoidance schemes
HMRC suggests you take independent professional advice to confirm that the scheme works in the way the promoter claims. HMRC recommends that at the very least you should ask to see the promoter’s legal advice and, importantly, their request for that advice to ensure that the facts set out in the request are identical to those of the scheme you are being offered. Legal advice might give you some confidence in the scheme, but will not guarantee that it is acceptable to HMRC or to the courts.
Using a tax avoidance scheme will mark you out as a high-risk taxpayer. This means that HMRC will subject your entire tax affairs to particularly close scrutiny, not just your participation in the particular tax avoidance scheme.
If you are concerned about tax avoidance schemes or have any questions or queries about this issue then please contact us today or speak to your account manager for more information.
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