Your Tax Planning May Need a Re-Think

Particularly for businessmen, trying to reduce a tax bill is now regarded as a seriously anti-social activity, and the media, and more importantly the Government, seem determined to exploit the public mood by shifting the goalposts for tax avoidance.

Tax avoidance or Tax evasion?

While tax avoidance is legal, tax evasion, the deliberate defrauding of HMRC by false declarations, is clearly not.  On the other hand, most current tax avoidance has been the subject of negotiated agreement with the tax authorities and deemed to be acceptable. So what’s the problem?

Tax avoidance and GAAR

Tax avoidance is practiced across society, from individuals who choose to trade as companies to minimise or delay their fiscal liability to global corporations which base themselves in tax havens. However, in this age of austerity, as HMRC seeks to harvest every last penny, both the legal and moral aspects of  legal tax avoidance to reduce tax bills are about to come under more rigorous scrutiny than ever before.

Taking advantage of the public mood, the Government is proposing a new, General Anti-Abuse Rule (GAAR) to assess the legitimacy of tax avoidance which include measures described by HMRC as ‘abusive’ or ‘artificial.’

Should I worry?

From the point of view of the tax payer, alarm bells should be sounding. Such vague definitions are inherently iniquitous, being open to wide interpretation, or even deliberate misinterpretation, by the authorities, who will also have the power to tilt the playing field in any direction at any time.

Although the current proposals include an Advisory Panel to review tax avoidance which HMRC decides to investigate, HMRC will itself be represented on the panel, severely compromising its independence and objectivity; and in any case the Panel’s decisions will not be binding on HMRC, which effectively will have carte blanche to rewrite its own charter of what is acceptable and what is not.

Is there a risk with my Limited Company?

Already a long standing, accepted, joint spouse company ownership scheme has been appealed by HMRC, fortunately without success, as far as the House of Lords. With moral judgements also becoming part of the equation, it is to be hoped that more effective safeguards for all tax payers will be in place before GAAR actually comes into operation.

You have been warned!

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