1. ‘The man in the pub’
The man in the pub is a tax adviser’s nemesis because his words of wisdom are usually incomplete, the wrong end of the stick, or just plain wrong, and often second or third-hand. There are no free lunches with tax. If anyone has a simple idea for paying less or avoiding tax it has almost certainly been legislated against by now. Of course something might seem to work if HMRC are not aware of it but that is not a basis for advice.
2. Tax avoidance schemes
Complex tax avoidance has basically had its day though no doubt there are still cases going through the appeals process which may or not work. But the political and public mood, which is reflected by the courts, has hardened against tax avoidance schemes. Not only that but we now have the GAAR (General Anti-Avoidance Rule) which, if a scheme is deemed to be ‘abusive’, contains some pretty hefty penalties. I don’t advise on any such schemes and most qualified professionals will no longer touch, in line with the rules of conduct of their professional body.
3. Getting ‘advice’ off the internet
There are accounting and other websites where tax questions may be posted and answers sought. The answer provided might be correct in itself but unless you have phrased the question correctly and given the full facts it may not apply to your circumstances; and of course if you take that answer at face value and act upon it and it turns out to be wrong (and possibly incur interest and penalties) there is no come-back. Qualified professional advisers all carry indemnity insurance in case they give wrong or incomplete advice through negligence.
4. A little knowledge is a dangerous thing
Occasionally I may get a client or prospective client who has some prior knowledge of an issue and/or has done some research of their own – and this applies to professionals too who may not be tax specialists. For example I was asked to check an accountant’s workings of the corporation tax payable on the sale of a property by a company. In working out the gain he had claimed Capital Gains Tax (CGT) Entrepreneurs’ Relief (ER) reducing the tax rate to 10%. I pointed out that companies don’t qualify for ER and was asked ‘where does it say that?’ to which I obliged with the statutory reference. The client in question is highly intelligent but not a tax specialist and it is very easy to get the wrong end of the stick even from a professional publication, whereas a qualified tax specialist should have a first-hand knowledge of the legislation.
5. The difference between tax avoidance and tax evasion
While as mentioned the tide has turned against complex tax avoidance schemes, tax avoidance is not illegal per se. Tax evasion on the other hand is illegal being deliberate concealment or mis-statement of taxable income or gains e.g. by omitting to include in or to file a tax return. There are heavy penalties for deliberate omissions or mistakes which may be up to 200% on top of the tax itself in the case of ‘offshore matters’ Plus a variety of civil or criminal charges may be brought.
6. Tax avoidance v tax planning
Tax planning is a very different thing from tax avoidance and has nothing to do with tax evasion. By tax avoidance I am again referring to marketed complex tax avoidance schemes. These are very high risk as already indicated. Many tax schemes have fallen foul of the ‘purposive approach’ to interpreting tax law, under which the courts may consider the purpose for which the legislation was enacted and whether what the scheme is trying to achieve falls within that purpose. However, where highly prescriptive, detailed legislation is involved the Courts have shied away somewhat from the purposive approach and may apply the legislation literally so that if the transaction or transactions in question fall outside the letter of the law the scheme may succeed. But that is ‘the exception that proves the rule’. Tax planning on the other hand is based not upon finding ways around the law but using the available reliefs provided in the legislation, and using certain tried and tested solutions to a range of tax problems – often involving getting informal or statutory clearance from HMRC in advance. That sort of planning e.g. a company purchase of own shares, a management buyout or an employee share scheme is the type of service I offer.
7. People with a lot of money get away with paying less tax
It was decided many years ago in the case of the Duke of Westminster v CIR that, basically no-one is obliged to pay more tax that they need to and more recently in CIR v Brebner it was decided that ‘no commercial man in his senses is going to carry out commercial transactions except on the footing of paying the smallest amount of tax involved’. This still holds good provided paying the smallest amount of tax does not involve a marketed tax avoidance scheme. A management buy-out for example could fall foul of CGT anti-avoidance rules or the rules on Transactions in Securities, both of which involve a ‘main purpose’ test i.e. if a main purpose is tax avoidance HMRC may invoke the anti-avoidance rules. But if a transaction is carried out for commercial purposes HMRC will usually give their blessing in the form of a statutory clearance, which it is always advisable to apply for in such situations. That said, while people with money can pay for the best advice, rules are rules and unfortunately if a client proposes a course of action which infringes those rules I have sometimes had to say ‘no you can’t do what you want’ or if you do these are the consequences. The advice may not always be welcome but there is little point in encouraging a client to believe they can ‘get away’ with something which they can’t. They are always free to take another opinion of course.
8. Tax advisers are out to make money
Well yes of course we are but members of professional bodies do have rules of conduct and professional standards. I set out my rates of charge in my letter of engagement which we both sign, which is accompanied by my standard terms and conditions. The fees are usually on a time basis but a prior quote can usually be given. However, I can’t speak for other advisers but I try to get the best result for the client which is not always strictly governed by the fee charged. I have on occasion given pro bono advice or if I think HMRC are being unreasonable and are wrong sometimes it becomes a matter of principle where I may work for a reduced fee or even on a no win no fee basis.
9. You are innocent until proven guilty
This is an ‘old chestnut’ where tax is concerned which sometimes is mooted when HMRC launch an enquiry into a person’s tax return. While the statement may be true in criminal cases (and an enquiry into tax fraud can lead to prosecution) there is no onus on HMRC to prove anything in an enquiry. They have extensive powers to enquire into returns, require information to be produced and even to visit business premises to inspect records. If as a result they discover irregularities whereby income and gains have been understated in a return, this will lead to penalties, interest on the tax underpaid as well as the tax itself. But usually this is settled as a civil matter. However, a professional tax adviser may well be able to reduce the bill – even to nil sometimes.
10. If HMRC don’t send you a tax return you don’t need to complete one
It is true that if HMRC don’t send a tax return in April or a notice to file a return, they usually don’t want one. This is often true of employees who pay their tax under PAYE and have no other income or gains and who, in most cases, won’t even be registered for self-assessment. However, if, for example, you inherit some money and use it to buy a buy-to-let property and so have rental income, you are obliged to file a return by 31 October after the end of the tax year (i.e. 5th April) in which the income was received, even if no return or notice was issued. That is also the last date for filing a paper tax return. You would also need to register for self-assessment online and can then file the return online.