I read the Times lead story yesterday with some interest. “The Tax Avoiders” it was called, and detailed a tax avoidance scheme called K2, which involves an evolution of EBT planning whereby a loan is extended to the taxpayer as opposed to remuneration. Evolution is perhaps the wrong word as it implies progress.
Poor old Jimmy Carr. He was named (and presumably shamed) in the article as avoiding rather a lot of tax on his purported £3.3m earnings. So not poor in the traditional sense, rather unfortunate to be the one named. Of course there have been some others mentioned today so they can share his misery.
What is one to make of this? In general there are two types of legal tax planning – avoidance schemes and bespoke tax planning. Illegal tax planning – tax evasion – involves things like payments “under the table” or in cash and non-declaration of income.
Avoidance schemes tend to be mass marketed and generally follow a one size fits all approach. They are disclosable to HMRC and should go on your tax return (under the Disclosure of Tax Avoidance Schemes – DOTAS – rules). These are typically not for the faint of heart and tend to give rise to significant savings and carry a high cost. The schemes which seem to cause the most HMRC headaches are those aimed at income tax avoidance, VAT and stamp duty (although stamp duty is less bothersome given that there is a lot less tax at stake). The former are the big earners for HM Treasury and so plugging those gaps is more significant.
Bespoke planning is where you sit down with a tax adviser, look at your affairs in the round and come up with a plan which is tax efficient. This is much less offensive, generally, to HMRC. Indeed, a good tax adviser will look at a variety of non-tax issues such as succession planning, asset management, your business plans, etc and try and develop a holistic action plan which is often coupled with a review of your business and investment structures.
As an aside, this is why, at MAB, the tax team is known as Wealth Management – since we go beyond simple tax planning and look at all our clients’ needs in terms of their wealth and assets – with the aim of keeping as much of it in their hands or those of the next generation.
It’s been well publicised that the Government is working on a GAAR – a general anti-avoidance rule for tax and 12 June saw a consultation on this published. The idea behind this is that reasonable tax planning is allowed but abusive practices will be stopped. The hope (in Government as opposed to the Channel Islands and BVI) is that this is going to stop the schemes but permit reasonable bespoke planning and indeed it is likely that this will be the result.
Hope is not lost! Even after the introduction of the GAAR, taxpayers will still be able to arrange their affairs in a tax efficient manner – but only reasonably efficient.
If you want to talk to someone about (legal) tax planning or wealth management for you or your business we are happy to help.