Fixed Probate Fees, call:

0800 612 6105


Alternatively local rate:

020 8150 2010

Tax avoidance or Tax evasion?

As we know it is not illegal for a taxpayer to attempt to minimise or avoid tax by arranging their financial affairs in a certain way. It is only illegal to evade paying tax by failing t o d e c l a r e transactions or by declaring false amounts of income or capital. Where a tax payer evades the payment of tax the person could be open to both civil and criminal penalties. The revenue has previously challenged tax avoidance scheme, especially those which are complex and technical as they view them as artificial. Provisions have been put in place to deal with specific cases of tax avoidance, many of these schemes were designed to prevent income profits being treated as capital profits and therefore taxed at a lower rate. The Government has undertaken a wide review of the tax system to prevent further ‘leakage’ by avoidance schemes. Historically, before 1965, the approach of the courts to tax was that every man was entitled to arrange his affairs to minimise tax. Even those plans which appeared false and artificial were permitted as long as they were genuine and properly implemented (see for example IRC v Duke of Westminster [1936]). During the 1970’s a number of very technical schemes were marketed to avoid tax, particularly in relation to the highest rate of income tax on investment income which peaked at 98%. This attitude of viewing ‘form’ in precedence to ‘substance’ was reviewed following a series of cases in the 1980’s which changed the way the courts looked at the benefit received by an individual under a ‘scheme’.The current position The Finance Act 2004 introduced some new anti-avoidance legislation which has been extended since August 2006. It has a tough approach which requires tax planners to notify the Inland Revenue Anti Avoidance Group of any tax avoidance schemes. This provision currently covers income tax, capital gains tax, corporation tax and stamp duty land tax. The legislation does not yet cover inheritance tax schemes but there have been recent recommendations that it be included. The objective of the tax avoidance disclosure rules is to deter the use of tax schemes that are abusive or rely on artificiality and to ensure that when these schemes are marketed they are disclosed to the Revenue. Under the current rules a scheme must be disclosed where it enables (or is expected to enable) a person to obtain a tax advantage and that this tax advantage is the main benefit. Not every tax strategy amounts to a ‘scheme’ and the Anti Avoidance Group have said that they do not wish to obstruct a taxpayer in seeking tax advice to minimise payment of tax. Essentially advice that is tailored to an individual client may not be caught but the marketing of general schemes may be.

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0800 612 6105

Or on local rate:

020 8150 2010

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