Tax avoidance Schemes

Tax avoidance entails deviating from the norms of the tax system in order to obtain a tax benefit that Parliament never intended.

It frequently entails fabricated, false transactions that serve no other purpose than to generate this benefit. It entails following the letter of the law but not the spirit of the law.

Most tax avoidance tactics are ineffective, and individuals who employ them may end up paying far more than the tax they were attempting to avoid, including penalties(gov.uk)

Is Tax Avoidance legal in the UK?

Tax avoidance is lawful (and there are numerous UK tax avoidance strategies in use today), but if HMRC discovers them, the taxpayer may be forced to pay not only the disputed tax amount, but also interest and tax avoidance penalties.

If the arrangements contain an element of deception, such as failing to divulge information that is needed to be disclosed, they are considered tax avoidance and evasion schemes.

What is tax avoidance scheme ?

A tax avoidance plan is set up to circumvent the laws of the tax system in order to achieve tax benefits for its members. Many people who join a tax avoidance scheme are unaware that they are putting themselves at danger of being audited by HMRC, and that they may wind up paying more in fines than they intended to save in taxes.

How to identify a tax avoidance scheme ?

Pay in the form of loans : Some contractor programmes entail offering you some or all of your remuneration in the form of a loan that you are not required to repay. It is routed through a series of businesses, trusts, or partnerships, and you will be informed that this is to save you money on taxes.

It sounds too good to be true: Some schemes claim to cut your tax burden for little or no money out of your pocket. They'll tell you that all you have to do is pay the scheme promoter and sign some paperwork.

 IR35 friendly: IR35 is a tax law that was enacted to prevent the use of disguised personnel. Your duties as a UK contractor will either be "within IR35" or "outside IR35." The phrase "IR35 friendly" has no meaning and is intended to deceive temporary workers who may not be familiar with the IR35 regulations.

Free Insurance: The majority of obliging umbrella corporations will supply you with what you require (Employers Liability, Public Liability and Professional Indemnity Insurance). However, if you are examined by HMRC in the future, no insurance will cover you - so don't be fooled.

Round in Circles: Money is circulated in a circle back to where it began, or some other artificial arrangement is used (gov.uk).

Huge Benefits: The scheme's advantages appear to be out of proportion to the money earned or the scheme's cost to you. The promoter of the plan will suggest that your investment carries very little risk.

HMRC has given it a Scheme Reference Number: HMRC has identified the arrangement as having tax evasion characteristics and is investigating it. Your promoter will have issued you a Scheme Reference Number (SRN), which you should have included on your tax return. HMRC has not 'certified' the scheme only because it has an SRN. Any tax avoidance strategies are not approved by HMRC(gov.uk).

Schemes HMRC has concerns about: You can find examples of tax avoidance schemes HMRC is looking at closely. Even if a scheme is not mentioned, it will still be challenged by HMRC (gov.uk).

Getting out of a tax avoidance scheme

It's preferable to get out of a tax avoidance scheme sooner rather than later if you're currently a member. The sooner you pay your tax debt, the fewer penalties you'll have to pay. HMRC urges anyone who has been involved in a tax avoidance scheme to settle, and has expert staff on hand to help. 

The ramifications of being part in a tax avoidance scheme

If you're found to be part of a tax avoidance plan, HMRC will conduct a thorough investigation into your tax affairs, which may be made public. It's likely that you'll have to pay the tax you owe right away. An accelerated payment notice is what it's called, and it normally has a 90-day grace period.

You should also employ a tax solicitor with experience in this subject because there's a good probability HMRC may start legal procedures against you.

 If you’ve been given a Scheme Reference Number

Schemes that fall under the disclosure guidelines must be reported to HMRC. You could face a penalty of up to   £5000  if you don't.

 Consider Cheylesmore Chartered accountants to get more information about Tax avoidance schemes.