Chapter 10 - 5.1 - Tax Avoidance

Question 1

What is tax avoidance?

Answer 1

Tax avoidance is using any legal method to reduce an entity’s tax burden, even if the method is not following the intent of the law (e.g artificially using foreign jurisdictions with low tax rates)

Question 2

Which is illegal - tax avoidance or tax evasion?

Answer 2

Tax evasion

Question 3

What is the first reason why tax avoidance measures are not always effective?

Answer 3

Promoters of tax avoidance schemes are now required to disclose details to HMRC, enabling HMRC to close loopholes quickly

Question 4

What is the second reason why tax avoidance measures are not always effective?

Answer 4

The court may disregard elements of transactions that have no commercial purpose (i.e when they have been designed with the main aim of avoiding tax)

Question 5

What is the third reason why tax avoidance measures are not always effective?

Answer 5

The general anti-abuse rule (GAAR) enables HMRC to challenge abusive tax avoidance agreements

Question 6

What is tax planning?

Answer 6

Tax planning is a form of tax avoidance where the taxpayer uses the tax legislation legally and as intended to minimise tax bills, but pay the correct amount of tax (e.g claiming the marriage allowance)