Maybe you heard that the Government plans to curtail the use of tax avoidance schemes by making accountants who sell these schemes pay a fine equivalent to the tax that would have been due if the scheme hadn’t been used?
Now I know some people feel that tax avoidance schemes are immoral and that every taxpayer should pay the tax due without seeking to minimise this – and if that’s you, well of course you’re entirely at liberty to hold this opinion. All I can say is that, whenever I’ve asked a client how much tax he would like to pay, I’ve never heard anyone say ‘As much as possible please?’ Most people recognise that there is a civic duty to pay the tax that arises from their activities, but at the same time they want to know if there’s a way of minimising this.
Maybe you thought that I wouldn’t be offering tax mitigation advice anymore? Well, that’s not the case. My understanding of the proposal (and you can be sure that I’ll be looking at the small print very closely if this comes in!) is that it is the use of illegal tax avoidance schemes that will be penalised. It’s only semantics, but my view is that would be tax evasion, which is and always has been against the law. Tax avoidance, or, as I prefer to term it, tax mitigation, is not illegal. It has long been established with HM Revenue & Customs that a taxpayer may so arrange his or her affairs so as to result in paying the least tax. For example, if two separate taxable transactions take place on the same day, the taxpayer may generally choose in which order these are deemed to take place if by so doing the tax bill is less (please note that this does not necessarily apply where the transactions are linked).
We use tax mitigation schemes which have already been disclosed to HMRC (these will have been assigned a DOTAS reference number – Disclosure of Tax Avoidance Schemes). It remains to be seen whether the DOTAS recognition will remain in place under the new proposals. DOTAS does not necessarily indicate that HMRC has approved the scheme, but at least we know that HMRC is already monitoring the scheme and we can check how similar cases have been treated. Whether or not a scheme has been disclosed, the tax mitigation strategies we use which involve a tax avoidance scheme have been extensively reviewed by a senior tax barrister who would be available to take on the case to meet any challenge from HMRC. The barrister is not going to put his name to anything illegal – and neither would I!
Do let me know how you feel about tax mitigation and, if you like, share any outcomes.