Most of us pay some form of tax and find it a bit annoying that a sum of our income goes straight to the authorities. As such, many try to organise their finances in such a way that they only have to pay the minimum amount of tax.
Many people mistake tax avoidance for tax evasion. The two behaviours are actually quite different. Tax avoidance involves utilising legally sanctioned schemes to minimise your tax liabilities. Another way of putting it is that tax avoidance involves arranging your finances to make use of tax advantages.
Tax advantages can arise in many situations and you may be able to save money if you know how to arrange your financial affairs. A tax solicitor can advise on the options available to you. It is important that you find a solicitor as they will help to assess your situation by carefully examining the entirety of your financial affairs to identify areas for tax advantages to be obtained.
When tax advantaged must be disclosed
Many employers offer their employees schemes which provide them with tax advantages, such schemes may encourage workers to join the company and make a career there. These schemes are generally perfectly legal and most companies ensure to get legal advice before setting up such a scheme.
Importantly, since 1 August 2004 a disclosure regime was introduced specifying that such schemes must be disclosed to HMRC. Initially, tax arrangements concerning employment or certain financial products had to be disclosed. However, the disclosure scheme was subsequently broadened to require disclosure of schemes relating to income tax, corporation tax and capital gains tax.
Other areas which require disclosure of such schemes include National Insurance contributions, Stamp Duty Land Tax, Inheritance Tax and Value Added Tax.
A tax arrangement must be disclosed when:
- It will, or might be expected to, enable any person to obtain a tax advantage
- That tax advantage is, or might be expected to be, the main benefit or one of the main benefits of the arrangement
- It is a tax arrangement that falls within any description (‘hallmarks’) prescribed in the relevant regulations
The purpose of requiring disclosure of these schemes is so that HMRC can ensure that the schemes are in fact legal. The line between legal tax avoidance and illegal tax evasion is a fine one. It is often difficult to identify when tax avoidance becomes tax evasion, and many participants in tax avoidance schemes are not aware that they are in fact breaching the law.
It is advisable that anyone entering into these schemes seeks legal advice from a tax solicitor. Whilst taking advantage of tax schemes may seem financially sensible, they can be risky and financially detrimental in the long term if you are penalised for tax evasion by HMRC.
Category: Study Articles