On the 8th August, HMRC published a leaflet to help you identify the tell-tale signs of avoidance schemes, and warn you of the potential negative consequences of using them.
You are entitled to plan your tax affairs in a way that makes sure you do not pay more tax than you have to. There are many legitimate ways in which you can save tax, or example by saving in a tax-free ISA (Individual Savings Account), making donations to charity through Gift Aid, claiming capital allowances on assets used in your business or paying into a pension scheme. But there is a big difference between using tax reliefs and allowances in the way in which they are intended to be used, and trying to bend the rules to avoid tax.
There are warning signs you can look for which should help you decide whether you are being offered good tax advice about how to plan your affairs or whether you are being sold a tax avoidance scheme.
Here are the warning signs according to HMRC:
- it sounds too good to be true and cannot have been intended when Parliament made the relevant tax law (for example, some schemes promise to get rid of your tax liability for little or no real cost, and without you having to do much more than pay the promoter and sign some papers)
- the tax benefits or returns are out of proportion to any real economic activity, expense or investment risk
- the scheme involves arrangements which seem very complex given what you want to do
- the scheme involves artificial or contrived arrangements
- the scheme involves money going around in a circle back to where it started
- the scheme promoter either provides any funding needed to make the scheme work or arranges for it to be made available by another party
- offshore companies or trusts are involved for no sound commercial reason
- a tax haven or banking secrecy country is involved
- the scheme contains exit arrangements designed to side-step tax consequences
- there are secrecy or confidentiality agreements
- upfront fees are payable or the arrangement is on a no win/no fee basis
- the scheme has been allocated a Scheme Reference Number (SRN) by HMRC under the Disclosure of Tax Avoidance Schemes (DOTAS) regime
Be on your guard!