tax planning (ch11)

Question 1

what is one key element that shows the distinction between tax evasion and tax avoidance?

Answer 1

evasion happens after tax liability exists, avoidance and planning before

Question 2

what should be considered for tax planning purposes when deciding whether to be self employed?

Answer 2

advantages of self employed:

pay income tax later rather than PAYE

wider range of deductible expenses

lower national insurance contributions

question of employee vs self employed not simple and care must be taken.

Question 3

what should be considered when deciding whether your company should be a sole trader or incorporated for tax purposes?

Answer 3

sole trader: income tax, NICs, dividend tax

company: corp tax, dividends, emplyoment income, retain earnings in company that you gives control over tax rate paid (may inc share price and trigger CGT).

different tax schedules for the two of them

capital gains: for sole trader flat 10 or 20%, with 6k exemption. for companies allowable costs indexed for inflation and chargeable gains form part of company’s TTP

remember - there are many important non-tax considerations too !! don’t make this decision purely based on tax

Question 4

what principles have emerged from various tax avoidance cases in the uk common law system?

Answer 4

substance over form - what actually happened > what is documented at face value

courts have increasingly used a purposive interpretation of tax law to look at what legislation is designed to achieve, not just what the words say.

courts generally hostile to artificial tax avoidance arrangements but are also bound by what legislation says and sometimes even purposive approach cannot overcome defective legislation

Question 5

what is tax avoidance as defined by HMRC?

Answer 5

hmrc definition of avoidance = exploiting tax rules to gain an advantage that parlaiment never intended.