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The Institute of Chartered Accountants for England and Wales (ICAEW) issued the guidance after the Government said that it considers the most aggressive tax avoidance as 'unacceptable'. The ICAEW says that its helpsheet 'focuses on that end of the tax planning spectrum and provides practical guidance.
Although primarily aimed at accountants and advisers, anyone thinking of using what might be seen as an artificially created scheme or one which, to use some sound advice, 'seems to good to be true', may find the guidance useful.
Avoidance/evasion
ICAEW begins by reconfirming the difference between tax evasion and tax avoidance. It says:
- Tax evasion is illegal and involves breaking the law; for example, hiding income or assets by failing to disclose information to the tax authorities, or attempting to take advantage of tax deductions for which the taxpayer is not eligible. ICAEW Chartered Accountants should never be involved with tax evasion.
- Tax avoidance is legal. Tax is a question of law and it’s the Government’s job to decide what legal tax planning arrangements it wishes to prevent. The scope for tax avoidance is increased by extremely complex tax systems that unintentionally create legal loopholes and potential anomalies in the tax law.
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"You should act with considerable care when you advise clients in this area, particularly where taxavoidance schemes are involved. Beware of the potential reputational damage to the profession and the likelihood of problems developing further down the line. The boundary between legal tax avoidance and illegal tax evasion is not always clear and there’s a danger that what starts out as legal tax avoidance may slip into illegal tax evasion."
Obvious
ICAEW advises that the characteristics of aggressive and artificial tax avoidance schemes are usually obvious. It refers to HMRC’s own spotlights page which sets out a number of typical characteristics of a tax avoidance scheme that taxpayers and their advisers should be wary of.
- It sounds too good to be true.
- It involves artificial or contrived arrangements.
- It seems very complex for what you want to do.
- There are guaranteed returns with apparently no risk.
- There are secrecy or confidentiality agreements.
- Upfront fees are payable or the arrangement is on a no-win-no-fee basis.
- The scheme is said to be vetted by a top lawyer or accountant but no details of their opinion are provided.
- The scheme is said to be approved by HMRC (it doesn’t follow that this is true).
- Taxation of income is delayed or tax deductions accelerated.
- Tax benefits are disproportionate to the commercial activity.
- Offshore companies or trusts are involved for no sound commercial reason.
- The involvement of professional trustees is claimed to guarantee success.
- A tax haven or banking secrecy country is involved for no sound commercial reason.
- Tax exempt entities such as pension funds are involved inappropriately.
- It contains exit arrangements designed to side-step tax consequences.
- It involves money going in a circle back to where it started.
- It involves low-risk loans to be paid off by future earnings.
- The scheme promoter lends the funding needed.
- There’s a requirement to take out insurance against the failure of the tax planning to
deliver the tax benefits.
ICAEW advises its practitioner members that the presence of one or more of these characteristics '' usually highlights the potential risks involved in the tax scheme and alerts you to act with caution'.
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Susie Hughes © Shout99 2012
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