Current Issues in personal tax

Question 1

What is tax avoidance?

Answer 1

Exploiting to reduce current or future tax liabilities through strategies that appear to be legitimate but are not intended to be available within tax laws. While avoidance is not necessarily illegal, questionable from an ethical perspective. The two most common examples of avoidance are:

using loopholes, or potential loopholes, in tax legislation;
creating artificial transactions or schemes designed purely to avoid tax.

Question 2

What is tax evasion?

Answer 2

Ways to avoid paying tax that are illegal.

Question 3

What are DOTAS?

Answer 3

The disclosure of tax avoidance schemes (DOTAS) allows HMRC to keep up to date with all tax avoidance schemes in circulation

Question 4

What is general anti-abuse rule (GAAR)

Answer 4

The GAAR provides a statutory mechanism for HM Revenue & Customs (HMRC) to counteract tax avoidance arrangements.

In order to work out whether the tax arrangements are abusive the so called ‘double reasonableness’ test has to be applied. The burden of proof is on HMRC to show that the arrangements are abusive

Question 5

What is the Ramsay Principle?

Answer 5

says tax must be charged where a scheme has no purpose other than to avoid tax. look at the effect of the whole series and not at the tax position of each individual step

Question 6

What taxes do GAAR apply to ?

Answer 6

income tax;
capital gains tax;
inheritance tax;
corporation tax, and other taxes charged as if it were corporation tax;
petroleum revenue tax;
stamp duty land tax;
annual tax on enveloped dwellings;
diverted profits tax;
apprenticeship levy;
national insurance (for arrangements entered into

Question 7

What is HMRC counter avoidance Directorate?

Answer 7

HMRC’s Counter-Avoidance Directorate was established to challenge anyone who has participated in tax avoidance schemes. The formation of this team has enabled HMRC’s operational and policy resources to unite into a single centre of expertise

It aims to improve operational efficiency by bringing together all HMRC’s resources for tackling avoidance into one place, whereas previously the work was spread across several different directorates.

Question 8

What is the financial advisors role in advising about tax?

Answer 8

1. To make sure that a client is aware of their obligations, often be in conjunction with other professional advisers i.e:accountants and solicitors. the adviser will help the client avoid fines for late payment and, in extreme cases, prosecution.
2. To fully advise them of the tax implications of anything they advise Meeting needs must come first.
3. To advise clients on investment strategies that minimise their tax obligations and maximise growth.
   To ensure that plans are set up correctly to meet the regulations and qualifying criteria. Advising on the appropriate use of trusts is one example of how the adviser can mitigate tax.
4. To make sure that their advice is holistic and minimises tax with no unexpected consequences.
   To help clients provide the means to pay tax bills when they fall due (ie inheritance tax).
5. If an adviser becomes aware of a suspicion of tax evasion or fraud, they are obliged to report it to their money-laundering reporting officer (MLRO).

Question 9

Ian Steal is employed as a white goods salesman and earns just under the higher-rate tax band from his salary and commission. He has a valuable network of business contacts and his employer pays him a cash bonus at Christmas, which is normally between 20% and 40% of his salary. He also has a profitable side line in repairing and selling electrical items, which he sells at car boot sales and via eBay. Consequently, he has a large cash sum to invest. He values discretion and wants to invest on a no-questions-asked basis. He does not want to pay any more tax and is interested in offshore bonds as he has heard that they provide tax-free roll-up.

List the considerations an adviser should take into account when preparing to advise Ian.

Answer 9

Mr Steal is employed so should be paying his tax via PAYE.
As his gross earnings are above the higher-rate threshold he should declare all his earnings in his tax return.
His side line could be considered by HMRC as a business and therefore the profits would be subject to tax.
His employer should pay all his income via payroll, including income tax and National Insurance contributions.
From the information given, there is a clear suspicion of tax evasion or fraud potentially by Mr Steal and his employer.
The adviser should not proceed with Mr Steal’s requested application, but should not discuss their concerns directly with Mr Steal as this could be viewed as tipping off.
The adviser should report their suspicions to their MLRO or financial crime unit.
The adviser should act on any instructions given by the MLRO.