Tax Planning in 2014 and Beyond!

Mr Osborne’s recent Budget Statement created quite a stir with a number of surprises the pundits had not expected.

Rather than examine any particular Budget measure in detail I would like to take a step back and consider how the tax planning landscape has changed over recent years and where tax practitioners may be concentrating their tax planning efforts in the years to come.

In the past 10 years, we have seen the introduction of a number of far reaching anti-avoidance measures, all of which have been designed to counter actual and perceived abuse of the tax rules.

Listing the main initiatives is rather sobering:

2004 – The introduction of the Disclosure of Tax Avoidance Schemes (‘DOTAS’) rules which provide early warning of avoidance schemes.
2006 – Changes to the taxation of trusts to thwart tax planning involving trusts.
2011 – Disguised remuneration legislation designed to eliminate aggressive tax planning using Employee Benefit Trusts and similar vehicles.
2013 – Rules for the capping of personal tax reliefs to counter some of the more imaginative sideways loss relief planning.
2013 – The enveloped dwellings rules for residential property held by non-natural persons (broadly companies and trusts).
2013 – The General Anti-Abuse Rule (‘GAAR’) to sit alongside the targeted anti-avoidance rules. The GAAR is designed to catch those abusive arrangements which are not caught by existing legislation.
2014 – In this year’s Budget measures have been announced to deal with promoters of marketed tax schemes and to require taxpayers to pay tax in advance. Taxpayers can still pursue ‘aggressive’ tax planning initiatives but in many cases they will no longer have the cash flow advantage – they will have to pay the tax which they might save upfront. The tax will be repaid when HMRC rule that the tax planning is effective.

Mr Osborne has made it plain in successive Budgets that tackling tax avoidance is a key element of the UK’s future tax policy.  It is clearly going to remain on the political agenda no matter which party is in power in the coming years.

HMRC believe that they are making progress in eliminating what they view as unacceptable tax planning. However, it is a worry that they estimate that they have 65,000 tax avoidance enquiry cases to conclude. HMRC’s resources will thus be stretched but will the incentive to conclude the outstanding cases quickly be removed if taxpayers are paying tax up front?

There have been a number of cases reported in the press which have brought aggressive tax planning into sharp focus. This has forced a number of ‘celebrities’ to admit that they had made mistakes with regard to their tax planning – Chris Moyles and Jimmy Carr come to mind.

There has also been some misreporting of issues with a number of large international corporations vilified for perceived tax avoidance planning when in fact they were and are complying with the UK legislation – they simply have the resources to ensure that they pay as little tax as possible.  I recall one Chief Executive suggesting that if HMRC wants his multinational operation to pay more tax in the UK, the Treasury should change the tax rules.

I do though believe that the days of the promoters and their second hand car dealing tax schemes are numbered.

So where does that leave the tax planning profession?

In rude health is my simple answer.  As a tax practitioner of 30 years standing, I have never been one to actively push the aggressive tax schemes which have been available for many years.  I have preferred to concentrate on the straightforward planning which can be cutting edge and which if done well and in a timely manner can yield substantial savings for grateful clients. The benefits of such planning, aside from the tax savings, are that there are no excessive promoters’ costs and little risk of detailed HMRC scrutiny.

I have seen too many cases, and earned substantial fees, from dealing with aggressive tax planning which has gone wrong or has been challenged by HMRC.  I am not advocating such planning so that I can earn extra fees, but rather raising it as a salutary tale that many a taxpayer has said to me that they had wished they had never gone near the planning because of the heartache and cost which has resulted.

There are many valuable reliefs for businesses and individuals within the UK tax code which enable well informed taxpayers to reduce their tax bills. Tax practitioners need to get close to their clients, and stay close, so that they are in the best possible position to explore all tax planning initiatives.  It is simply a case of clients being made aware of the opportunities and planning accordingly.

Some simple examples:

  • Entrepreneurs’ Relief gives a 10% rate of tax on business disposals – there is plenty of planning that may be necessary in order to maximise the relief for clients.
  • How many businesses are undertaking research and development work for which enhanced relief, or in some cases cash payments, are available. In many cases the relief is going unclaimed because businesses have not had the appropriate advice.
  • EIS planning is valuable for companies and individuals but with a host of conditions to be met.
  • There are many tax reliefs available to individuals to help them plan their financial affairs in a tax efficient manner – the advisers’ role is to keep up to date and talking to their clients on a regular basis.

Tax planning is alive and kicking with plenty for advisers to explore with their clients. However, I have no doubt that we will see fewer front page headlines exposing the tax planning antics of celebrities.

For many like me this is a welcome development and may eliminate the Monday morning call from clients which goes something along the lines of: “my mate down the pub says that he pays no tax at all – so why do I?”

There will be many a tax practitioner and financial adviser who has received a similar call. Like me they will welcome the opportunity of sitting down with clients to discuss straightforward tax planning initiatives without the unwanted distraction created by promoters with their latest tax planning wheeze.

Article written by:

Simon Littlejohns, Tax Partner
Friend Partnership Limited
+444 121 633 2007

Simon Littlejohns is a chartered accountant and chartered tax adviser. He has spent 30 years in tax having worked with Big Four, top ten and local independent practices. He has spent the last 15 years advising OMBs and HNWIs on all aspects of tax compliance and planning. He now heads up the tax practice of Friend Partnership Limited.

Friend Partnership Limited was established in 1983. The firm has grown and expanded over the last 30 years into a well-respected practice offering a broad range of professional advice and services to a range of OMBs and HNWIs. The practice has a particular specialism in high technology businesses with a number of such clients in the United States. The partners have all spent time with Big Four firms with the result that the firm offers a top ten service at affordable rates.

IMAGE: Simon Littlejohns, Tax Partner, Friend Partnership Limited