Crossing the Tax Avoidance to Tax Evasion Border

HMRC has a spotlight page which is aimed at drawing attention to tax avoidance schemes that may turn out to be tax evasion schemes. This is effectively the equivalent of a border patrol between the two. One would be forgiven for thinking that this has been like many physical borders in Europe – a line on a map that you can cross without even noticing. Let me disavow you of that notion. Despite the efforts of some very clever Accountancy and Legal folk, this is at best a “high risk crossing point” and more likely to be something approaching one of those films you may have seen in the past that involves check-point Charlie in days of East and West Berlin (some of us do remember them).

HMRC on target

However, in these days of better technology, I might suggest that check-point Charlie has gone one further by sending an advance text or email advising you to change course. Or to use another military film scenario – you are flying into restricted airspace and missiles are locked onto you as a target. Actually, I think that this perhaps best describes what is currently happening.

Christmas Post

HMRC have written over 1,500 letters to people who signed up for a particular tax avoidance scheme suggesting that they pull out of the scheme or face HMRC investigation. This is the sort of post that you really should open rather promptly and respond to. This is not a “file it to do later”.

Definitions – Detail is everything

However, it seems that the language about this topic is changing. Tax avoidance always has been legal and would involve using personal allowances and reliefs – such as pensions, ISAs and so on. It is interesting to note that HMRC is now referring to this as tax planning rather than tax avoidance. HMRC now define tax avoidance as “bending the rules of the tax system to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little or no purpose other than to produce a tax advantage. It involves operating within the letter – but not the spirit – of the law“. This is an approach that seems to be heading in the direction of “guilty until proven innocent”. So please be warned – but this is precisely where expert advice is required. There are genuinely good forms of proper investment that carry tax relief or allowances. These need to be considered carefully and can be excellent ways to diversify a portfolio.