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Tax avoidance: how to stay on the right side of the law

Tax avoidance is described by HMRC as “operating within the letter, but not the spirit, of the law” and SME tax returns are being scrutinised to make sure they don’t fall foul of the rules. As HMRC wins around 8 out of 10 avoidance cases that taxpayers choose to litigate, we look at how to spot tax avoidance schemes, and how you can avoid them.

How can you spot a tax avoidance scheme?

There are many warning signs: if it sounds too good to be true, it probably is. The less work you have to put in to sign up, or the less cost to you, the more caution you should exercise.

If a scheme pays you in the form of loans that you’re not expected to pay back, or is diverted abroad or through trusts, companies or partnerships, or the money appears to end up where it started, you should think carefully.

HMRC approved?

HMRC never approves such schemes. If a scheme has a Scheme Reference Number (SRN) it does not mean it is HMRC-approved. Instead, the SRN means HMRC has identified the arrangement as having the hallmarks of tax avoidance and it is under investigation.

Truth and consequences

If you’re involved in a tax avoidance scheme, HMRC will fully investigate your tax affairs, and may also require to you pay a tax bill called an accelerated payment notice, a requirement to pay the full amount of tax or National Insurance contributions HMRC calculates as being due, upfront and within 90 days.

HMRC wins around 80% of tax avoidance cases, meaning you could face legal bills and costs on top of the tax and NI you owe, as well as high penalties. HMRC may then treat you as a high risk taxpayer, involving extra scrutiny from them in the future.

Nick Lowe, tax director at Bennett Verby, said:

“Getting involved in a tax avoidance scheme simply isn’t worth the risk. There are ethical and legal ways to reduce tax bills, and as we have seen from high profile tax avoidance cases, damage can be reputational as well as financial.”

How can Bennett Verby help?

We can help you stay on the right side of the law. Although you are responsible for your own tax affairs, we can offer expert advice on any scheme you have seen. We want to make sure you pay the right amount of tax, no more and no less.

If you think you might already be in a scheme, HMRC have dedicated teams to help you settle your tax affairs. The earlier you contact HMRC, the less interest you’ll pay.

 

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