“Nothing is certain but death and taxes” – a phrase attributed to multiple authors including Benjamin Franklin. Whoever said it they were certainly correct.
The taxes raised pay for the Public Services that we need and consume – road, health service, Police, Ambulances, Education to name but a few. If as a Nation we want Public Services then we need to fund these by way of a system of taxation.
That’s just how it is.
Paying the right amount of tax
Once you accept that as a concept then the only issue remaining is making sure that you pay the right amount of tax.
All too often it’s thought that accountants will work some miracle and reduce a tax bill by huge amounts. If that were possible then most accountants would start by doing that for themselves!
Put simply, the role of an accountant is to make sure that you follow the rules and regulations in place, record the appropriate costs in your accounts and pay the right amount of tax based upon your income, profit and circumstances.
Yes there are some unscrupulous accountants out there who may sail close to the wind bending the rules to win client business. In fact there are some accountants who get a bung for promoting Schemes or Dodgy Umbrella Companies promising high rates of take-home pay.
Perhaps greed drives this behaviour.
Caveat emptor – “Let the buyer beware”
It could be argued that greed also drives those that use a scheme.
Whatever the reason ultimately, regardless of experience, knowledge or expertise it is up to the individual to make sure that they are paying the right amount of tax regardless of who is advising them.
If you are paying less tax than your peer group who are earning a similar amount then you have to query why? The conversation should not be “how can I reduce my tax bill” but “am I paying the right amount of tax”.
Disclosure of tax avoidance schemes – DOTAS
But is the individual totally to blame for the use of schemes?
Frankly when HMRC has a system for “disclosure of tax avoidance schemes” (known as DOTAS) then they have to accept responsibility for tax avoidance behaviour.
The HMRC web site says:
If you’re involved in tax avoidance that should be disclosed under the disclosure rules, you must let HM Revenue and Customs (HMRC) have information about the scheme. This helps us to:
- get early information about schemes and how they claim to work
- find out quickly who has used a scheme
If you don’t tell HMRC about a scheme that must be disclosed you could be liable to a penalty.
HMRC must accept fault
Often when someone claims that their Scheme is HMRC approved (note – there is no such thing!) then it’s because they’ve reported it under the DOTAS rules.
The thing is that HMRC have such a back log of reported Schemes to wade through, and are so under resourced and often lack the necessary skills to investigate these schemes, that it is years before anything gets done on them.
By then thousands of pounds in underpaid tax has built up resulting in severe financial hardship for the Scheme users when presented with a tax bill for the right amount of tax as they’ve probably spent the money.
The question I’d ask my accountant, advisor or Umbrella company is have they made any disclosures under the DOTAS rules! If they have avoid them like the plague.
How to pay less tax
If you don’t like your tax bill, then the one and only sure fire way of paying less tax is to find a tax jurisdiction that has a lower or zero rate of tax i.e. move out of the UK.
A harsh message but it’ll sure avoid waiting for the inevitable tax investigation and underpaid tax bill.
HMRC will catch up with these schemes at some point. Of that you can be certain.
Six Tips for staying the right side of legal
- Avoid anything that has the word Scheme in it unless you find it on the GOV.uk web site as being legitimate e.g. the cash accounting scheme
- If an accountant, advisor or Umbrella Company offers you a way of paying less tax, via an Artificial Arrangement of your Tax Affairs, promising you that it is all legitimate and above board then don’t believe them
- If someone tells you that their way of working is HMRC approved ask for a letter from HMRC to back this up as well as an insurance policy guaranteeing to pay any future tax bills in case of future issues
- If there are figures on your payslip or in your accounts that you do not understand then ask your accountant, advisor or Umbrella Company for an explanation of the workings. If they cannot provide one then get rid of them and find a reputable accountant; preferably on recommendations and one that is a member of a professional accounting body.
- Remember that the term accountant is not regulated and anyone can call themselves it. They don’t need qualifications or experience. Avoid the cowboys and cowgirls out there!
- If Jimmy Carr tries to give you tax advice run a mile!