HomeFWJ TakeawayTax disputesDisguised remuneration and APNsWhat is a tax avoidance scheme?

A tax avoidance scheme is a policy, scheme or arrangement which seeks, directly or indirectly,

  • the non-payment of tax by exploiting a tax loophole to reduce an individual or business’ tax liability; or
  • the wholesale avoidance of this tax liability.

A tax avoidance scheme will normally be promoted by a third party and facilitated by a trust, which (simply put) would receive the employee’s income as a loan and remit it on to the employee, who would not repay the loan. There is a key difference between tax planning and tax avoidance.

Tax avoidance schemes have become very popular in recent years by using loans (which would not ordinarily be taxable) to third party trusts, who then lend it on to the employee (thus avoiding the requirement to pay income tax) via an employee benefit trusts.

This is a very simplistic description but as a result legislation introduced in 2019, a loan charges of 50% is imposed on ta avoidance scheme which existed as at 5 April 2019.

  • as a result, the employee had the option of either disclosing their tax avoidance scheme, and facing penalties and interest that may be payable; or
  • awaiting enquiries and the possibility of a loan charge of 50%;
  • however, for most tax earners, the penalties upon disclosure annulled any benefit when compared to the threat of the loan charge.

More importantly, the employee also faces the risk that such taxes will be backdated up to 20 years and this could have huge financial consequences for that individual.

At Francis Wilks & Jones our tax dispute team has considerable experience of negotiations with HMRC, including loan charges, accelerated payment notices, personal liability notices, VAT security notices, appeals to tax tribunals and liquidator claims. Please call one of experts today for help

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