Tax Avoidance Schemes

Tax Avoidance Schemes

Tax avoidance involves bending the rules of the tax system to gain a tax advantage that the laws never intended. It often involves contrived, artificial transactions that serve little or no purpose other than to produce this advantage.

Commonly thought of as a loophole, HM Revenue & Customs deems tax avoidance as ‘operating within the letter, but not the spirit, of the law’ and warns, ‘Most tax avoidance schemes simply do not work, and those who use them may end up having to pay much more than the tax they tried to avoid, including penalties.’

Common Signs

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 involve giving you some or all of your payment 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 that there’s very little or no risk to you.

Round in circles

Some scheme involve money going around in a circle back to where it started, or some similar artificial arrangement.

HMRC has given it a Scheme Reference Number

You may have been given a Scheme Reference Number (SRN), but having a SRN does not mean that HMRC has ‘approved’ the scheme, rather that it is investigating the scheme and its provider. You must tell HMRC if you are using a scheme that has been issued with a SRN. If you do not you could be liable to a penalty of up to £5,000.

What happens if you are involved in a tax avoidance scheme?

If you’re involved in a tax avoidance scheme, HMRC warns that it will treat you as a high risk taxpayer and will closely inspect all of your tax affairs in future, not just your use of the avoidance scheme. HMRC may also require you to pay the tax you have tried to avoid while the investigation in to the scheme used is being carried out, by issuing what is known as an Accelerated Payment Notice (APN).

An Example of a Tax Avoidance Scheme

Here a scheme known as a Remuneration Trust is put under a spotlight, followed by the Umbrella Company schemes offering 80% take home pay, if you agree to have your employment income paid by them.

https://www.gov.uk/guidance/remuneration-trust-tax-avoidance-using-loans-or-fiduciary-receipts-spotlight-51

https://www.gov.uk/guidance/umbrella-companies-offering-to-increase-your-take-home-pay-spotlight-45

Have you used a scheme provider?

Get in touch with HMRC and get professional representation which is your right as a taxpayer. The sooner you start making reparation the less interest you will pay, and using a tax professional will help to reduce your tax bill, particularly where you have been induced, mislead or poorly advised by a tax professional, or someone you took to be a tax professional.

Contact me, Carolyn Walsh, for a confidential discussion and a free consultation if you are concerned about anything to do with tax avoidance schemes, using the contact form on this website or emailing me at carolynwalsh@cwcsolutions.co.uk or by calling 01206 570512.