Tax avoidance has recently hit the headlines via a well known wealthy individual.
This issue tends to divide people on whether it is acceptable for such schemes as K2 to be used as legitimate tax planning. Comments have been made to me that it is purely for the rich, but the same people are quite willing to do the odd “cash job”. The distinction here is that tax avoidance is legal and the other is tax evasion which is illegal!
As accountants part of our remit is to keep clients taxation liabilities to a minimum within the law. This can be done by advising on capital equipment purchases and pension payments, which most people will agree is legitimate tax planning, but what about some businessmen and women who employ their husbands and wives who do very little work but receive a salary. This means the couple divide its income tax bill, rather than one of them who would be paying a larger amount of income tax. The savings are even greater if the ownership of the business can also be split.
Chancellor George Osbourne intends to strengthen existing rules against this anti-avoidance scheme by introducing a General Anti-Abuse Rule. This would enable HM Revenue & Customs to differentiate between what counts as legitimate tax planning and what is abusive tax avoidance. The government hope to bring the rule in by 2013. Should the government also consider the level of higher rate tax, so that such schemes become financially inefficient?