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| Version 2 | Version 3 |
|---|---|
| Tax avoidance: What are the rules? | Tax avoidance: What are the rules? |
| (about 1 hour later) | |
| Gary Barlow and his band members will now have a very large tax bill dropping through their letter boxes. | Gary Barlow and his band members will now have a very large tax bill dropping through their letter boxes. |
| But as far as the law is concerned, they have not done anything wrong in a criminal sense. | But as far as the law is concerned, they have not done anything wrong in a criminal sense. |
| Yet even though tax avoidance is normally legal, it can quite easily turn into tax evasion. | |
| And tax evasion - a deliberate plan to cheat the taxman - is most definitely an offence. | |
| So what is the difference between avoidance and evasion, and how can you still go wrong with avoidance? | So what is the difference between avoidance and evasion, and how can you still go wrong with avoidance? |
| While the judge in this case took 147 pages to explain what these men had done wrong, there are some simple rules to follow. | While the judge in this case took 147 pages to explain what these men had done wrong, there are some simple rules to follow. |
| Avoidance | Avoidance |
| Of course everyone is allowed to avoid paying tax if they possibly can. It is perfectly legitimate - indeed the government encourages us - to save in a tax-free Individual Savings Account (Isa), for example. | Of course everyone is allowed to avoid paying tax if they possibly can. It is perfectly legitimate - indeed the government encourages us - to save in a tax-free Individual Savings Account (Isa), for example. |
| That means you do not pay any income tax on the interest you receive, or capital gains tax when you come to sell. | That means you do not pay any income tax on the interest you receive, or capital gains tax when you come to sell. |
| There are also tax-saving advantages to putting money into a pension scheme, donating to charity via the gift aid scheme, or claiming capital allowances on things used for business purposes. | There are also tax-saving advantages to putting money into a pension scheme, donating to charity via the gift aid scheme, or claiming capital allowances on things used for business purposes. |
| But tax reliefs and rules are open to abuse. | But tax reliefs and rules are open to abuse. |
| "Tax avoidance is bending the rules of the tax system to gain a tax advantage that Parliament never intended," said a spokesman for Her Majesty's Revenue and Customs (HMRC). | "Tax avoidance is bending the rules of the tax system to gain a tax advantage that Parliament never intended," said a spokesman for Her Majesty's Revenue and Customs (HMRC). |
| "It often involves contrived, artificial transactions that serve little or no purpose other than to produce a tax advantage. It involves operating within the letter - but not the spirit - of the law," he said. | "It often involves contrived, artificial transactions that serve little or no purpose other than to produce a tax advantage. It involves operating within the letter - but not the spirit - of the law," he said. |
| Tax avoidance currently costs the taxpayer £4bn a year, according to the latest figures from HMRC. | Tax avoidance currently costs the taxpayer £4bn a year, according to the latest figures from HMRC. |
| That is very nearly as much as illegal tax evasion, which costs £5.1bn. | That is very nearly as much as illegal tax evasion, which costs £5.1bn. |
| Together, they account for about a quarter of the £35bn that is lost to the Treasury every year, otherwise known as the "tax gap". | Together, they account for about a quarter of the £35bn that is lost to the Treasury every year, otherwise known as the "tax gap". |
| Aggressive | Aggressive |
| In typical cases, those involved in tax avoidance will pay others to help minimise their tax bills. | In typical cases, those involved in tax avoidance will pay others to help minimise their tax bills. |
| If HMRC disagrees with your tax return, you can take them to a tax tribunal, as happened in Gary Barlow's case. | If HMRC disagrees with your tax return, you can take them to a tax tribunal, as happened in Gary Barlow's case. |
| But the judge rejected his claim that the business was making actual losses. | But the judge rejected his claim that the business was making actual losses. |
| In essence, the court will be looking to decide whether there is any real business going on in such cases, or whether the business is just a means to make a loss, and so reduce a tax bill. | In essence, the court will be looking to decide whether there is any real business going on in such cases, or whether the business is just a means to make a loss, and so reduce a tax bill. |
| "Don't be taken in by someone trying to interest you in a tax avoidance scheme which promises a result that sounds too good to be true," advises HMRC. | "Don't be taken in by someone trying to interest you in a tax avoidance scheme which promises a result that sounds too good to be true," advises HMRC. |
| If you do get involved in such "aggressive" tax avoidance schemes, you may end up in a protracted dispute with HMRC, and if you lose, you risk having to pay the tax, the interest and penalties as well. | If you do get involved in such "aggressive" tax avoidance schemes, you may end up in a protracted dispute with HMRC, and if you lose, you risk having to pay the tax, the interest and penalties as well. |
| In some cases, avoidance can quickly turn into evasion. | |
| If you conceal facts, or lie about them, you can be judged to be breaking the law, which could result in a fine, or even a prison sentence. | If you conceal facts, or lie about them, you can be judged to be breaking the law, which could result in a fine, or even a prison sentence. |
| Rules | Rules |
| To help taxpayers, HMRC advises UK residents to look out for the following warning signs: | To help taxpayers, HMRC advises UK residents to look out for the following warning signs: |