Tax avoidance, it seems, is perceived to be morally bankrupt, egregious, only just short of scaring the horses. With that in mind, here are some pointers to politicians and anyone else who wants to join the mad scramble away from being labelled a tax avoider:
- Don’t pay into a pension, because the pension firm then takes tax from HMRC and puts it into your personal pension pot. Some people don’t pay into a personal pension, so it’s unfair that you do and pay less tax as a result. Think of all the effort the Conservatives just put into making pensions more accessible. Crazy.
- Don’t give any money to charity, because HMRC then has to give money to that charity as well – and you might inadvertently avoid higher rates of tax if you do. Shocking.
- Pay the most you can, for everything, anywhere. Then you cannot possibly be accused of having avoided VAT.
- Campaign vigorously for an increase in petrol prices, so that you can make sure you are paying an acceptable amount of fuel duty. Drive everywhere while campaigning, so that you use as much fuel as possible, fill up more often, and pay more fuel duty. Hang global warming, tax avoidance is the real menace, if recent political headlines are anything to go by.
- Don’t take childcare vouchers: they can save you hundreds of pounds in tax and National Insurance – which, as we now know, is just plain wrong, particularly since only a few million people are potentially eligible.
- Do not claim job-related expenses, as they can reduce your tax bill. If your employer reimburses you for business travel and similar expenses, or pays for professional subscriptions, do make sure that these payments are submitted to HMRC on a Form P11D and do NOT make a corresponding claim under any part of ITEPA 2003 Part 5 Chapter 1. But note that HMRC will automatically assume that such expenses are tax-deductible, so you may have to write to them to tell them to remove the deduction. Probably more than once.
- Do not check your PAYE tax code, ever. HM Revenue & Customs always get it right. If you correct your tax code to pay less tax, then you could be accused of tax avoidance. It’s better just not to take the risk. If you are concerned that you may be underpaying tax, see 8.
- If HMRC writes to you to tell you that you have underpaid tax over the last several years because (a) their computer system couldn’t accommodate a car benefit so large (see 9), or (b) it ignored your repeated requests to remove coding allowances (see 6 above), or (c) it for some reason gave multiple Personal Allowances across all your tax codes, etc., etc., do NOT question the letter or check the calculations but simply pay the additional tax that is due. UNDER NO CIRCUMSTANCES SHOULD YOU MENTION EXTRA-STATUTORY CONCESSION A19, which is where HMRC is supposed to give up tax which they have consistently messed up collecting. And cross your fingers that they have now burned all old copies of their PAYE manuals which told them they should grant ESC A19 without having to be asked first. Least said, soonest mended.
- If you can choose your next company car, make sure it’s a heavy-polluting model. The emission levels will bring tears to everyone’s eyes as they weep for joy at the tax you’ll contribute on the car benefit in kind. True believers deliberately pay back just £1 less than their private fuel cost, so that they can then basically double their tax bill with a fuel benefit bonus. And it means even your employer can share in the tax avoidance avoidance, because they can get to pay a lot more National Insurance, and claim even less in Capital Allowances – if they’re bothering to claim any at all. They’ll be delighted.
- If the worst happens as an employee, and you are made redundant, (see 9 above), do NOT claim that the first £30,000 should be free of tax, and National Insurance on the lot, because that would be avoiding tax. (And National Insurance).
- If you’re a registered charity, think about giving up the charitable tax status which exempts most of the income you receive. After all, everyone has to pay their fair share. Why should charities be any different?
- Don’t invest in Enterprise Zones, Film Partnerships, Enterprise Investment Scheme companies or any other government-sponsored incentives because, even though they were legislated by the government, one government’s tax incentive is another government’s tax avoidance. Or even the same governments. Don’t put your money in that ISA, Mrs. Worthingon. Or decontaminate any land. Renovating business premises is basically sheep rustling by another name.
- If you are trading internationally, make sure to relocate your base of operations to whichever country charges the highest rate of business taxes, and ensure that all of your profits are taxed there, even if they were actually earned elsewhere. And, just to make sure that no other country complains that you are avoiding paying tax in their territory, do NOT claim Double Taxation Relief on those profits: now you can pay tax pretty much everywhere, simultaneously. Bravo. All that effort the Chancellor put into the UK having the most competitive tax system in the G20 – for internationally mobile companies at least. “Do a Starbucks” and pay tax you don’t actually owe.
- Don’t do any Research and Development, create any Intellectual Property or indeed any other Corporate Intangible: it’s a slippery slope to avoiding tax by investing in improving the UK’s “knowledge economy”. And we wouldn’t want that now, would we? I mean, I thought we did, but now I know better.
- If you’re thinking of spending serious capital on plant, machinery or equipment, then please, for everyone’s sake, make sure you hold off spending until after 31 December 2015. Then you can be sure of swerving the pesky enhanced Annual Investment Allowance that this government craftily snuck into the 2014 Budget to catch out the recidivist tax avoider.
- If you run a business, don’t reclaim any Input VAT. At all. In fact, just don’t claim any expenses full stop. You’ll sleep easier. Considerably the poorer, probably. But at least you won’t have avoided paying any tax.
- If you make losses, see 16 above. If you still have losses, make sure to claim them in the least efficient way possible. Waste them against tax-free income or gains. Better yet, just don’t claim them.
- Don’t get married: marriage opens the door to some really big reliefs and exemptions which you will struggle to avoid. (I am not just talking about the transferable Personal Allowance) If you’re already married and find you have to transfer assets, then get divorced first to make sure capital gains tax is chargeable.
- Pay Inheritance Tax on every lifetime gift you make – they’re only potentially exempt, after all. If you are concerned that HMRC may refuse to charge IHT on immediate lifetime gifts just because you happen to be alive, then on a normal interpretation of the legislation that would be understandable. I am, however, aware of certain schemes which, for a relatively modest fee, are guaranteed to resolve the issue permanently in your favour, although I should warn you that the election is irrevocable – at least by current medical standards. I am nevertheless absolutely confident that these schemes will prove successful and have had no complaints at all from anyone who has procured such a scheme in the past. Please see notes 20 and 21.
- Don’t write your life insurance policies into Trust but just leave them payable directly to your estate. That way, you can maximise your exposure to Inheritance Tax on death. You’d be mad not to.
- Leave things in your Will to everyone except your spouse. Transfers between spouses on death are automatically exempt and the only way to avoid the exemption is to leave your estate to someone else entirely. Your spouse will no doubt be delighted that you have so much confidence in his or her independence. If in doubt, get divorced now. It’ll be easier on you both in the long run.
- If you’re about to receive a legacy from someone’s will, do the decent thing and draw up a deed of variation to ensure that it goes to someone else who’ll pay more tax, sooner. Don’t worry about the fact that the legislation specifically provides for such deeds to be used to pay less tax: it was clearly a drafting error and will soon be corrected. Alternatively, think about doing it within 3 months or after two years, in which case you can beat the legislation and continue to pay as much tax as you can.
- If you sell your only or main home, then try to treat it as a chargeable gain for Capital Gains Tax purposes. This is not as easy as it might seem: unfortunately, the relief is automatic. But there is a way to avoid the relief, which is to say you bought the property with the intention of making a gain. It’s not guaranteed to work without challenge, because HMRC normally interprets the legislation quite narrowly. But it is open to you to interpret the legislation differently, and thereby pay the tax you really want to.
- Finally, do NOT under any circumstances become a Member of Parliament. MPs and ministers are afforded a number of particularly generous reliefs which are significantly superior to those of ordinary employees and which, to a man, they will use pretty much every day. Tax avoidance: all in this together? Yes they are.
© Taxation Wise
And when you’ve achieved all this, you’ll know that you can sleep well at night knowing that in the eyes of Patricia (sound bite) Hodge, you’ll have done the right thing.