Part 2: Budget News In Detail – Tax avoidance schemes under further attack

Very shortly HMRC will be able to force people who participate in tax schemes to pay their tax up-front, while HMRC and the courts decide whether or not the arrangements are legal:  If the scheme is found to be legal and the taxpayer is entitled to the tax deduction, only at that stage will the tax be refunded, with interest.

No more cash flow advantages

Many tax-payers, in the past, would participate in tax schemes, even if just for the cash flow advantage – you don’t pay the tax whilst HMRC is trying to unwind the scheme, and often years pass before the scheme fails and tax is repayable. With this new change, there will be no upfront tax advantage to participating in the scheme, and all tax will be payable as if the taxpayer hadn’t participated in the scheme.  The tax benefit would only come years later, if the scheme happened to be successful in court.  This effectively takes the oxygen out of the cash flow advantage that a tax-payer has, even if the scheme later fails.

More resources to recoup tax funds

Furthermore, the Chancellor is committing even more resources to tax enforcements and the closing of loopholes; also to the crushing of what the Treasury see as “aggressive” tax avoidance – even if its legal.  The Chancellor expects to raise an additional £4 billion a year from closing tax avoidance opportunities that taxpayers are presently exploiting, so clearly this an even bigger priority now than in previous years. These measures, together with the new General Anti Abuse Rule (GAAR), heralds a new age in UK taxation and probably indicates that the tax avoidance industry is now into its death throes.

Our approach to our client’s tax planning – no grey areas

Whilst we don’t deny that tax schemes available can mitigate tax completely in some cases, our approach at Figurit is for our clients to be part of durable, long term, effective tax planning methods, which are completely within HMRC regulations; no grey areas. This includes things like incorporation, which continues to be an excellent way to legitimately save tax, when structured correctly. Also, pensions, ISA’s, gift aid. Read our recent articles: Part 1: Budget News in Detail – Good news for Savings and Pensions! Part 3: Budget News in Detail – Business tax and why incorporation makes sense? We work hard to save our clients tax but without venturing into potentially lengthy, stressful investigations with HMRC.