10th May 2016
The revelation about David Cameron’s late father using a tax haven fund in Panama has again highlighted the issue of UK companies and individuals using off-shore accounts and the impact this has on tax paid to HMRC.
And while evidence suggests that the case of Blairmore Holdings Inc wasn’t ‘aggressive tax avoidance’, the episode has left the PM red-faced and his party battling a PR disaster, having previously been self-appointed guardians, aiming to take a hard stance on those who avoid paying UK tax.
Certainly, the Government has put in place a number of measures that attempt to end tax avoidance schemes and close exploitable loop holes in the tax system.
“Tax avoidance is definitely being clamped down on by the Government,” says Ian Lowes, managing director of Lowes Financial Management. “There are services out there that do offer aggressive tax avoidance, which can seem attractive at first, but they border on tax evasion, which is illegal, and taking part in them can get you in a lot of trouble.
“At Lowes Financial Management, we never encourage aggressive tax avoidance and it has been quite a long time since the firm had people knocking on its door attempting to promote such aggressive schemes because, effectively, they are being outlawed.”
People and companies using off-shore accounts to avoid tax are also being identified, with the Government’s having entered into a number of data-sharing arrangements with other jurisdictions.
James Cashman, an associate in corporate tax and banking at DWF LLP, explains: “HMRC now has substantial and increasing powers to obtain information about a UK tax payer who is holding money in accounts outside of the country. And there are reciprocal arrangements to identify people using UK bank accounts who owe tax to other jurisdictions, too.”
James goes on to point out that off-shore accounts can be used as part of legitimate tax planning, “as long as you disclose them to HMRC and any relevant tax is paid.”
Those companies or individuals identified by HMRC as having avoided paying tax – using off-shore accounts or otherwise – can expect to receive a bill for the unpaid tax, up to 100 per cent of the amount in penalties, and the interest accrued over the period the tax has been avoided.
So what do you do if you think you’ve been caught up in a tax avoidance scheme?
James says: “Over the years there has been a number of disclosure opportunities where, if you have used a tax avoidance scheme, you could admit this to HMRC and potentially receive a lower penalty rate.”
He continues: “My advice to anyone who is worried is to get professional advice and if an issue is identified, it’s better to approach HMRC with the position, as you are more likely to arrange a more preferable arrangement than if they come to you.”
But what about the average person on the street who has savings and investments but for whom off-shore accounts and aggressive tax avoidance schemes are seen as a preserve of the ultra wealthy?
Ian Lowes reflects: “There are perfectly legitimate ways that a person can reduce his or her tax burden and what’s important is to get proper advice about tax planning.
“For example, you can choose to utilise investments which are subject to capital gains tax, which are set at a lower rate than the current income tax rate – and the rate was cut in April this year.
“There are also a number of legitimate, often pre-approved inheritance tax strategies. But they do need to have legitimate underlying investments and these can push you towards a high-risk investment strategy.
“One of the best ways to legitimately reduce your tax bill is to use tax shelters like ISAs. ISAs are government-approved allowances that you can use to shelter up to £15,240 each year and tax is not due on the returns. These can build up to a substantial amount over a number of years and investors can end up with a sizeable portion of their investment portfolio that isn’t subjected to any tax.”
So, while the Government is clamping down on tax avoidance schemes, it is simultaneously offering a number of tax reliefs, allowing people and companies to legitimately reduce their tax burden instead of avoiding tax altogether.
But the take-home message is to seek trusted professional advice for any tax planning, and, if it seems too good to be true…it probably is.