Tax Evasion or Avoidance

HMRC Under Pressure?

Imagine, just for a moment, that you work for the Government. You are under pressure to improve the economy and come up with the antidote to its ailing problems. You know that despite what we all may hope for, the current system is overstretched. We are spending more than we earn. The options appear stark – spend less or earn more, ideally both. However as a Government you take the lead on encouraging enterprise – hoping that some new ideas and businesses last long enough to generate jobs and wealth. Tax is the only method of earning – unless you opt for making State owned assets available for private hire outright  ownership.

HMRC investigating 41,000 tax avoidance schemes

Now you learn that HMRC are investigating around 41,000 unresolved cases of possible tax evasion, currently regarded as tax avoidance strategies until a court finds in favour of the HMRC. By the way, this is worth £10bn. In the 2010/11 tax year alone, it is estimated that £5bn of the £32bn tax shortfall is due to tax avoidance schemes. Let me remind you that tax avoidance is legal, tax evasion is not. There is a blurring between the two where some very clever people design some clever investment products that attempt to exploit loopholes in tax avoidance rules, working on the assumption that this is not tax evasion. We have all heard of the higher profile celebrity cases.

Smoke and mirrors

You are a minister (or aid/adviser) seeking to produce the tool that seems to elude everyone else, you are probably thinking that this looks like a potential goldmine. The sums look good – just get HMRC to resolve the cases and collect £10bn. You know however, that the law makes tax avoidance legal.

Avoiding Allowed

You may have gathered that I am somewhat suspicious that the confusion between avoidance and evasion by members of Parliament and within the media. This seems to have taken a direction into guilty until proven innocent. Let me be clear – tax avoidance is use of the current rules, set down by Parliament in order to help individuals and businesses arrange their affairs in such a way as to minimise tax payments. This includes use of ISAs, pensions, capital gains tax allowances, the personal allowance and so on. We all have these tools at our disposal, covered by the same law.

Spot the difference

Certainly schemes that break the law need to be closed – or those that deliberately muck around with the rules to the point that you cannot determine black from white. This is tax evasion – the same as not declaring income. However it seems to me that in an attempt to appear tough and “on the side of the masses” there is currently a groundswell of rhetoric that if applied would drive a horse and carriage through the very laws that give us all our basic right to arrange our affairs as we like. So be wary of politicians and journalists that seem to blur the line between evasion and avoidance, they do so at our peril and at their self-promotion.

 

 

 

Tax Evasion or Avoidance2023-12-01T12:23:09+00:00

When Reducing Tax Backfires

Reducing Tax Backfires

Starbucks and Facebook have been in the news this week because they used a system for reducing tax which has backfired, resulting in the paltry amount of tax that they have paid to HMRC despite huge revenues. They haven’t done anything illegal. They have used the system to its advantage. This is a classic case of “when reducing tax backfires” a PR disaster. However, one has got to question that ethics of the practice, known as transfer pricing. In general it would be fair to say that transfer pricing is the tax domain of international business – and really big international business at that. The principle is actually quite fair – being able to allow costs incurred for a company that is faced with operating costs in different countries. There is a sense that this starts in a place of wanting to avoid double counting or not counting. However there is a flaw in the system – one that enables big business to effectively pick and choose where the tax is paid. Naturally any half decent business analyst would suggest finding somewhere where tax rates are very small if they exist at all. This is essentially what Starbucks and Facebook – to name just two, international businesses have done.

System overloaded with loopholes

Yes “the system” is wrong, because it is open to significant “abuse”. However, the world of tax is complicated by all countries having completely different taxes and tax rates. Not helpful. The bright sparks (and they are) at some of the top Accountancy firms get paid significant sums to help businesses avoid tax. The principles are the same as any of us using our own Accountant to help reduce our own tax bill – legitimately. So be wary of throwing stones in glass houses. Yet clearly there is something unsettling when the sums seem to stack up in favour of big business having its cake (make mine a blueberry muffin) and eating it. Tax is a civic responsibility, we don’t dance with joy when paying it, frankly because we know that so much of it is wasted on really rather daft political measures. I still advocate a single rate of tax, irrespective of what the form of income or capital gain. This would, in my opinion, reduce the loopholes and stop people doing what they can to pay as little as they can. Tax needs to be fair to both payer and payee, at the moment it isn’t fair to either, but I see little chance of this changing in the near future. However, transfer pricing rules are being reconsidered. The UN has published its thoughts within a new transfer pricing manual. So there is some hope that a greater sense of fairness might be applied. However, as I have said before, Starbucks and Facebook did nothing wrong in law. However. if you find their actions objectionable you could always use your much under-rated consumer power.

Money, Values and Ethics

Financial planning when done properly should connect your values and ethics with your finances. This is what seems so “off message” with Starbucks. However most individuals are caught in the same trap of not thinking through the bigger picture – what it is that they want or indeed how much is enough. This is something that I help clients to think about and apply to their financial plan. There are two types of people, those that do and those that don’t, so give me a call.

When Reducing Tax Backfires2023-12-01T12:23:02+00:00

Business Owners or Executives – Car Benefit Scheme Warning

1977: The Car – Silverstein

Car Benefit Scheme Warning

If you are a business owner or executive with a company car and a salary sacrifice scheme, it seems that life may get a little more complicated and probably more expensive. The online accountancy media are suggesting that those with salary sacrifice and company car schemes are going to get more expensive due to a European Court of Justice ruling. This is due to VAT which employees have had to pay on non-cash goods provided by employers in exchange for income, a service, which is VAT liable. This has been the case since January 2012.

The ECJ basically ruled in agreement with HMRC that the salary sacrificed is a supply of services in return for payment and therefore subject to VAT. This careful fine twist in the rules has wider implications for any salary sacrifice scheme. You should certainly take this matter up with your Accountant and I would urge you to read the HMRC guidance which you can find here.

Nobody should be under any illusion that HMRC is a soft touch, the Coalition Government are very clear that all tax must be properly collected and HMRC must deliver results and effective measures to ensure that this happens. Whilst there are advisers and accountants that will always push at the edges of tax avoidance into evasion, you need to be clear that tax evasion can carry serious penalties, including a custodial sentence. Whilst we assist clients reduce tax and plan appropriately to do so, it is important that such actions do not contravene the law or the direction of the law.

Business Owners or Executives – Car Benefit Scheme Warning2023-12-01T12:22:55+00:00

Lawyers Expect A Close Shave With HMRC

2011: The Lincoln Lawyer – Furman
It may be many years since the UK launched a proper taskforce, but HMRC is effectively going out all guns blazing in its campaign for collecting owed taxes. At the moment they are focusing on Lawyers . It basically works like this, HMRC know roughly how many clients each practice has, therefore it can look at average revenues and spot those that look a little bit low on their declared income. Previously HMRC has attacked Doctors, Dentists, Tutors and Coaches, however Lawyers are the first “high risk” group being attacked by the taskforce.
Other “high risk” groups include the hair and beauty trade in the North East, thought to owe around £3.5m in tax. Restaurants in the South East and Solent are also under review (£2.5m), the Scottish motor trade (£3m) and the grocery and retail trade (£7m). There are now over 30 HMRC Taskforces in operation, all launched since May 2011.
There are various ways to legitimately reduce your income tax. The most obvious being to make pension contributions, which attract tax relief at your highest rate of tax. Charitable Giving is also a way of reducing tax burdens and of course means that your money goes to a source that you are concerned about. If you are need assistance do get in touch, otherwise perhaps some of the no win, no fee cases may be concluding earlier.
We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting
Lawyers Expect A Close Shave With HMRC2023-12-01T12:22:53+00:00

Clegg’s “Emergency Wealth Tax”

2010: Fair Game – Liman
The media is full of stories that Nick Clegg is about to suggest an emergency wealth tax. The proposals seem to focus on taxing wealth rather than income. He will be outlining his thoughts next month at the LibDem annual conference (not that urgent then!). It is difficult to remain even handed when politicians come out with headline grabbing statements. Mr Clegg, as we all know has somewhat lost the shine that surrounded him during the last election, though quite how fair an assessment this really is remains to be seen. I have to admit that I tend to be pretty sceptical of most politicians, but in particular the three party leaders. All of whom purport to have “family values” yet applied for jobs whilst they have young families that would certainly require longer working hours than most of us would contemplate, removing the ego from a career is not an easy task, in politics it appears particularly difficult.
Returning to the issue at hand, a fair tax system is relative to what you believe “fair” to be. One could take the view that fair, would be everyone having the same and therefore paying the same tax, or simply a fixed sum. Alternatively fair might be paying the same proportion of income as tax (rather than the multitude of different rates of tax on different forms of income). As I have said before, there is needless complexity in the UK tax system. As a financial planner I am duty bound to help reduce tax payments, which we accept is not the same as “tax dodging”, because deep within us, we are probably of the view that our taxes are not spent wisely, much is wasted and we should be paying a lot less. The problem as I have said before is that there is an incentive to arrange your affairs in a manner that results in as little tax being paid as possible. This is true of the self-employed nanny to the large multinational. This is daft, but nobody (no politician) wants to address this basic problem. Instead they focus on how taxes will be spent (or not) and shifting the rates of tax by millimetres once a year.
There is no doubt in my mind that the system does not work well. The really wealthy tend to pay very small amounts of tax, whereas those earning between £100,000-£1m pay huge amounts of tax proportionally. I don’t profess to have all of the answers on this, except that I do firmly believe that a single rate of tax applied to all forms of income, however they are derived, would make much more sense and would be an awful lot fairer. Wouldn’t it be better to live in a country where we all felt a sense of fairness and perhaps joy in paying our taxes that contribute to the society in which we want to live…. I know, I must be dreaming.
We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting
Clegg’s “Emergency Wealth Tax”2023-12-01T12:22:41+00:00

Paying In Cash And Nothing To Declare?

1960: Morals Squad – Mahon
I’m sorry to go on about this, but avoiding tax is perfectly legal. Politicians lecturing about the morality of paying in cash are displaying a misunderstanding of the law (despite a Law Degree from Oxford). Anyone can pay in cash for anything. The reason most of us don’t is because we don’t carry it around, though research tends to show that those that pay for things with cash are far better at budgeting. I also do not believe that a discount for payment in cash is “morally wrong”. Payments made by credit card or cheque all carry additional charges which are not applied to cash payments. If someone pays cash in order to avoid VAT, then that is illegal. The law is not about morality. The law requires that I pay my tax, which is then used by Government to fund all sorts of things which I may personally find morally dubious – but that is for the electorate to assess at the ballot box.
The issue is whether or not the recipient of the cash declares the money as income (they should). This then forms part of their turnover or revenue. It is perfectly right to then be able to offset the cost of trading against this revenue, the one less the other is what is left (a profit of loss). In Britain we do not tax a loss, we do tax a profit. If this profit is a business, they are subject to corporation tax, if they are an individual (sole trader or partnership) then its personal income tax.
Tax evasion is illegal. In essence tax evasion is breaking the rules and not declaring the relevant income or profit for tax purposes. It is certainly true that there are tax avoiding products available which sail pretty close to the breaking the law and becoming tax evasion. It is the role of HMRC to determine this. There will always be some clever and cunning Accountancy firm etc that attempt to find new ways to avoid tax. It is my belief that a single rate of tax based on and form of income derived from the UK should be taxed in the UK. This would overnight remove the need to search for ways of paying less tax, because it could not be done. This is why I do not believe politicians or HMRC or the Treasury are actually serious about “clamping down” on tax. What they really mean is that they want to appear to do something. Some of the conversations I hear on the radio or read in the press are misguided and based on little but envy. A fair tax is proportionate to all. There is nothing fair about a higher rate of tax. Sorry, but there really isn’t. One person paying more tax than another is irrelevant unless they have identical incomes/gains etc.

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting
Paying In Cash And Nothing To Declare?2023-12-01T12:22:30+00:00
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