Posted by James Pearson on 02 Jun 2015

Tax Avoidance Schemes: Too Good To Be True?

Tax avoidance has once again hit the headlines with news that the Employment Allowance is being used to help recruitment agencies avoid NICs altogether by using a host of limited companies, each employing 1 or 2 recruits.

The Employment Allowance was introduced to relieve employers of their first £2,000 of National Insurance Contributions (NICs) in order to boost employment in small companies; with this avoidance scheme the promoters, in the words of Robin Williamson of the Chartered Institute of Taxation, “are having a laugh.”

HMRC expect that this aggressive tax avoidance scheme will fail on several fronts. The Employment Allowance legislation itself only allows a single allowance to be split between organisationally interdependent companies, as these companies.

In addition, the legislation prevents the allowance being claimed where the legislation is being applied for the avoidance of tax. Finally, HMRC believe that the scheme will fall within the General Anti-Abuse Rule (GAAR) that was introduced from 2013.

The GAAR applies to ‘tax arrangements’ which are ‘abusive’. In broad terms a tax arrangement is any arrangement which, viewed objectively, has the obtaining of a tax advantage as its main purpose or one of its main purposes.

‘Tax advantage’ in this context is also broadly defined. It would therefore seem that, having been sold to them on the basis of saving money, users of this kind of avoidance scheme may find themselves in a costly legal battle with HMRC to determine whether the scheme works, and are likely to have to pay the NICs anyway.

The GAAR, along with Accelerated Payment Notices and Follower Notices, which require the taxpayer to hand over the disputed tax to HMRC whilst the legal process runs its course, have together made tax avoidance schemes less successful.

However, taxpayers will always be attracted by the offer of lower taxes. As ever in these situations, the maxim “if it seems too good to be true then it probably is” should come to mind.

If you are offered the chance to participate in a tax avoidance scheme, and you find yourself tempted, you should always obtain independent tax advice to explain the risks and any hidden costs which may not have been clearly set out by the promoter of the scheme.

Tax Innovations can provide independent advice regarding the tax implications of any proposed course of action, and help you to find the best solution for your tax affairs, without the risk of using aggressive or abusive schemes.

If you would like any advice regarding the above article or would simply like to discuss other ways in which we could help you or your business, please contact us on 01962 856 990 or customerservice@taxinnovations.com.