Tax avoidance is the operation of a policy, scheme or arrangement which seeks, directly or indirectly
- the non-payment of tax by way of a reduction in an individual or business’ tax liability that would otherwise be due;
- or the wholesale avoidance of this tax liability.
There is a difference between tax planning and tax avoidance.
Tax avoidance can be as simple as straightforward non-payment or failing to record transactions for either income tax or VAT purposes. Many small businesses in the UK may operate some aspects of their business on a “cash” basis, with the possibility that they
- may not record some of their income (with the corresponding income tax or corporation tax saving); or
- it may enable their services to be offered more cheaply, without any VAT being added.
In most cases this may be more properly described as tax evasion, although this is dependent on the individual circumstances.
Perhaps the most popular example of tax avoidance is operated by companies where directors receive their income as directors’ loans and then either do not repay such loans to the company or write them off at the year-end. This is tax avoidance as the payments are essentially income, upon which income tax (usually PAYE and National Insurance Contributions) should be charged.
- in more recent years tax avoidance has become more complicated as HMRC have sought to clamp down on such activities;
- as a result of such efforts, more complex schemes have been promoted to enable loans (which would not ordinarily be taxable) to be made to third party trusts, who then lend it on to the individual (avoiding the requirement to pay income tax);
- these are commonly described as contractor loan schemes or employee benefit trusts.
These schemes, where tax avoidance exists, are now largely illegal and since April 2019 the employee has been at risk of a far more severe penalty in the even such loans remain outstanding.
At Francis Wilks & Jones we have considerable experience of tax disputes and legislation and defending claims by HMRC or claims by liquidators appointed over companies. We can assist you with any negotiations with HMRC, accelerated payment notices, any disguised remuneration scheme issues, personal liability notices, VAT security ,and tax tribunals.