The tax system can be complex and detailed, but there are ways of bending the rules to avoid paying tax. Tax avoidance can involve deliberate, artificial transactions that serve little to no purpose besides the advantage of avoiding taxes. These transactions may be within the law but are often ineffective and can result in persons having to pay more taxes and even penalties.
There are several types of tax avoidance schemes and a tax consultancy can help you identify them. One of the key characteristics of a tax avoidance scheme is that it sounds too good to be true. If a programme offers a way to lower your tax bill for little to no real cost, it is likely to be a tax avoidance scheme.
A Scheme Reference Number or SRN is a key indicator of a tax avoidance scheme. An SRN does not mean a scheme has been approved by HMRC, as HMRC does not approve any tax avoidance schemes.
In fact, a Scheme Reference Number is issued for arrangements that show signs of tax avoidance and are being investigated by HMRC.
Tax consultants also suggest looking out for schemes where you are not required to do more than sign a few documents and pay the scheme promoter. While such a scheme may seem tempting, tax consultants would argue that the penalties and additional payments you may incur as a result of a tax avoidance scheme is not worth the risk.
A tax consultancy would also watch out for benefits that are out of proportion to the money being generated or the cost of the scheme. As mentioned above, if it seems too good to be true, it is likely to be a tax avoidance scheme.
While this may raise red flags, the scheme promoter will tell you that your investment involves very little risk. However, there is a lot of risk attached to tax avoidance schemes, which is why you should look out for these features.
A tax avoidance scheme may also make your payment in the form of a loan that you are not expected to pay back. This can be for some part or all of your payment.
A tax avoidance scheme may divert the payment through a chain of companies, trusts or partnerships, which they will explain is a way to pay less tax. Most tax avoidance schemes send the money in a circle, with it going back to where it started. Such artificial arrangements are a clear sign of a programme being a tax avoidance scheme.
While these signs may be easy to identify, many miss them due to how attractive an offer a scheme promoter will present. However, avoiding tax is never a smart idea and it is always best to go to a reputed tax consultancy like S&T Associates for tax solutions services.
S&T Associates provides corporate tax planning services to find the most effective tax structure for a business, determine potential tax opportunities and reliefs, complete and file relevant returns, reduce tax on disposals and maximise relief on acquisitions.
These services are done within legal frameworks and regulations, which is why it is always advisable to work with a company like S&T Associates for corporate tax planning.
In terms of personal tax planning, the tax consultants at S&T Associates can provide advice on all personal taxes including income tax, capital gains tax, inheritance tax, and non-domiciliary taxes. They can also complete relevant tax returns and advise persons on trusts and estates.
Such tax planning services can help you with your taxes without taking advantage of loopholes in the legal system like tax avoidance schemes do.
However, if you choose to go ahead with a tax avoidance scheme, you could be looking at HMRC fully investigating your tax affairs. They may also require you to pay the tax you are avoiding upfront and may issue an accelerated payment notice. This tax bill requires you to pay the full amount of tax or National Insurance contributions HMRC calculates as being due upfront and within 90 days.
You may also face legal action, which tax consultants would advise avoiding as much as possible. HMRC wins nine out of ten avoidance cases and losing an avoidance case can result in life-changing bills, legal costs, penalties, and growing interest. This is in addition to paying the tax you owe.
Entering a tax avoidance scheme may also label you a high-risk tax payer and HMRC may closely inspect all your tax affairs in the future
