Episode 1 of this newsletter referenced a conversation I had with a pal where he mentioned “Tax Invasion”. I loved it. A little slip of the tongue that radically changed the meaning of the sentence.
Once you look at tax for more than a few minute you realise that evasion is completely illegal. Always. This is hiding takings, fabricating expenses and that type of thing.
Avoidance though could be putting money in to an ISA or pension and these again are completely legal. Is all avoidance legal though?
For a long time now overly complicated schemes and structures have been getting struck down by HMRC where even though legal on paper they are so convoluted as to become illegal. Artificial steps planted in to a sequence of events can often fall foul of the General Anti-Abuse Rule (GAAR).
HMRC can use GAAR to “ignore’ steps that exist purely for tax reasons. A good example of this in the incorporation of properties via a partnership. If you put properties in to a partnership on day one, then in to a company on day two, HMRC will likely ignore the actions on day one as they will have served no commercial reason to exist. They will likely just have been to save tax – which means GAAR can be used.
Take care out there! Don’t assume either that just because an “accountant” has told you something that it can be 100% relief upon. Some of the worst examples of abuse I have seen have been the brainchild of “accountants” that were normal people simply pretending to be accountants…