Three Ill-Advised Tax Schemes All Practitioners Should Avoid at All Costs
As all experienced practitioners will know, there are many legitimate ways to reduce a client’s tax liabilities. However, there are some who will step into murky territory and advise tax schemes knowing what they are advising their client could be deemed as tax evasion rather than tax avoidance.
Over recent years, with the public backlash growing as multi-national businesses are avoiding paying more and more tax, the UK government have clamped down on tax evasion schemes. Since 2015, Her Majesty’s Revenue and Customs (HMRC) has submitted 1,135 referrals to the Crown Prosecution Service (CPS). Penalties for companies and individuals who have devised the scheme have also reached dizzying heights with a maximum penalty of £1 million.
With this in mind, our friends at Solution Loans have pulled together details and graphics on three common tax scams, if you are recommending these schemes, we would recommend you rethink your advice.
Job Board Tax Avoidance Scheme
How it is done:
A contractor joins an umbrella company
The contractor carries out work for this umbrella company
The Contractor is paid a small amount that doesn’t qualify for tax or National Insurance
The rest is taken to pay for advertising the contractors services on a job board
In exchange for the contractor continuing to list their services on the job board they get loyalty points
These loyalty points can then be redeemed for cash by the contractor
Land Tax & Stamp Duty Tax Avoidance Scheme
How it is done:
The buyer sets up an unlimited company and make a gift of cash to the company
The company purchases a property
The company gifts the property to the director as a dividend
The company claims it is exempt from the tax on the basis that the property is being transferred
No tax is therefore paid
Gift Aid Tax Avoidance Scheme
How it is done:
A trust buys something, e.g. £1 million of gilts
The gifts are sold via a third party to an investor who has paid to be part of the scheme for a nominal fee
The investor sells the gilts for their actual value
The investor then donates this money plus a small sum to the charity
The investor then claims gift aid tax relief on their donation
The charity then uses the donation to repay the loan
They do this with a loan from a third party
Unsure if you are advising a tax evasion scheme?
If you aren’t sure if you are advising a tax evasion scheme to your clients, there’s a comprehensive list of known schemes on the HMRC website. However there are some basic questions you have to ask yourself that which help you judge if it is a tax evasion scheme not:
Known tax havens are used
Offshore companies are utilised
Low or no real economic activity involved
Money or assets go around in a circle or have gone through numerous intermediaries
Confidentiality is required
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