When discussing tax planning and tax strategies, we must draw a clear line between tax evasion and tax avoidance. Tax evasion involves tax payers using illegal strategies to avoid paying taxes. This is considered fraud and, as such, is punishable by law.
Unlike tax evasion, tax avoidance is a legal concept that involves tax payers using legal strategies to avoid paying taxes. Thus, it is based on the interpretation of tax laws and its omissions. With the help of an accountant or tax advisor, the person or company will benefit from the tax laws of their country to reduce tax charges from taking advantage of ambiguities in the legal texts that allow different interpretations or create conflict with other existing regulations.
To help tackle avoidance, HMRC introduced the Code of Practice on Taxation for Banks in 2009. It was designed to change the attitudes and behaviours of banks, discouraging both organisations and banks in providing services from promoting or facilitating tax avoidance by others.
Following the UK 2015 Budget, a further enforcement of professional standards was required by Government and HMRC challenged the agents and regulatory bodies to set these higher standards to prevent tax avoidance. In response, professional accountants improved their code of practice, the Professional Conduct in Relation to Taxation, strengthening the standards on acceptable tax planning.
HMRC is developing sanctions and a stronger penalty system to provide a credible thread against those who enable tax avoidance or develop facilitated arrangements/schemes.
Factors characterizing the tax avoidance have proven to be critical, problematic, and sometimes not sufficiently regulated. This is why the UK government is intervening and defining some aspects previously outlined. The principle is to operate within the spirit of the law. If something was not intended when the law was drafted, it should not form part of a strategy to avoid tax.
HMRC is trying to hinder this phenomenon which is widespread and requires different regulations and actions. Indeed, conditions, factors, cases and involved bodies are manifold. Once again the UK government demonstrates its intention to protect honest taxpayers implementing anti-avoidance measures. It is recommend the importance of taking professional advice from an independent, reputable tax advisor who has no interest in encouraging people to take part in unacceptable tax avoidance.
Written by Marta Bellamoli, Marketing Co-ordinator