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More recently the number of tax related news items that have made headlines have increased significantly. From non-resident football club owners having their residency status challenged by HMRC to popstars who had become partners in a film partnership, all these schemes designed to legally find loopholes within the tax legislation and avoid tax have come under greater scrutiny and criticism. So much so that it was announced in August 2016 that the UK treasury would take drastic steps to deter any firm / organisation who was offering these types of schemes to clients. Often, people get confused between tax avoidance and tax evasion, one of which is a definite no. It is therefore important to understand the difference between the two concepts. Tax Avoidance – “is bending the rules of the tax system to gain a tax advantage that Parliament never intended” (HMRC Spokesman). Tax Evasion – in the simplest way of explaining, tax evasion is “a deliberate plan to cheat the taxman” (BBC, 2014). Therefore, as tax avoidance is not ‘illegal’ those that currently advise clients on tax avoidance schemes currently avoid any penalties and face little risk of HMRC punishment. Their clients however could face massive penalties / legal action in the future if the previously exploited loopholes are closed by updated tax regulations. This is because these schemes are reported to cost HMRC nearly £3bn a year. Going forward, it is proposed that accountants or advisers who help individuals and corporates to bend the rules to great or gain a tax advantage will face new tougher fines and penalties and even tax investigations under the UK Treasury’s proposals. A fine of up to 100% of the tax that was avoided has been suggested in the new rules that have just been published for consultations. This will include any tax that is avoided via off-shore havens. It is hoped that under these measures, the total amount of tax lost by HMRC via tax evasion is reduced which was previously reported at a total of £4.4bn in 2014/15 (The Guardian, December 2016). It should be noted that HMRC are not targeting the legitimate ways of tax planning and cutting your tax liabilities (such as pension contributions, tax breaks or Individual Savings Accounts). Therefore those individuals who do not undertake these tax avoidance schemes will have nothing to worry about. As these proposed actions were only published for consultation recently, it will still be some weeks before we know when these penalties will be implemented by HMRC. If you want to find out more about how Wisteria could assist with organising your tax affairs more efficiently from a tax perspective, then please do contact the tax planning team on 020 8429 9245 or email [email protected].
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