UK Loses Billions because of Tax Avoidance Schemes

A recent report shows that the UK loses billions just because HM Revenue and Customs (HMRC) are unable to control the tax avoidance schemes spread across the whole country.

By the words of The National Audit Office, HMRC was dealing with about 41,000 cases with up to £10.2bn at stake. The professionals from HMRC claim that during the last two years they had successfully contested 40 schemes.

No matter one of the main priorities of the coalition government in order to reduce the deficit in the budget is to stand against the tax avoidance, according to the NAO more than a hundred new schemes became evident each year having in mind the time between 2004 and 2011.

It is determined that 30,000 small companies or individuals use the so-called employment intermediary schemes and partnership loss schemes. This way they inflate the loss artificially using “circular loans”, which gives them the opportunity to conceal other income from tax.

Despite the fact that HMRC strives for success in this area, such cases often consume lots of time and appear to be too hard to be resolved.

Litigation has opened 110 investigations since April 2010. HMRC managed successfully with most of them but according to the NAO, this does not prove that the litigation will turn out to be an effective way to stop the schemes.

“It is inherently difficult to stop tax avoidance as it is not illegal. But HMRC needs to demonstrate how it is going to reduce the 41,000 avoidance cases it currently has open.”

The NAO also mentioned these schemes are usually used by specialist tax advisors whose aim is to prevent their clients from paying taxes.

By virtue of the law since 2004, authorities should be notified but the watchdog is skeptical about the positive results of this regulation over the scale of tax.

“This changed the shape of the market, but has not prevented some promoters from continuing to sell highly contrived schemes to large numbers of taxpayers, depriving public finances of billions of pounds.”

The chairperson of the Commons Public Accounts Committee observing the work of the NAO, Margaret Hodge, shared her opinion that HMRC have to try harder in order to clamp down on promoters of tax avoidance schemes so that some evident results appear.

“People who pay their taxes promptly and in full will be dismayed to discover that the enormous level of tax avoidance taking place is overwhelming HMRC’s efforts to combat it,” she said.

As an answer to her statements HMRC claims that their successful investigations brought to court protected about £4bn.

The spokesperson later added that the Government would help HMRC giving it more powers to obtain information and creating an anti-abuse rule in 2013.

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Tax Avoidance Schemes – New Measures

New measures are being taken by the government against tax avoidance schemes. During the last few years more and more wealthy people were thinking of different ways to avoid the rulesand hide taxes.

Tax reduction firms, which exploit measures in order to lower taxes “artificially and aggressively” might be forced to reveal details about their clients, declared the Treasury minister David Gauke.

This was provoked after famous Jimmy Carr`s case, where he was involved in a complex scheme to reduce tax, an action described by David Cameron as “morally wrong” . The government is aware such schemes exist and is now seeking measures to reduce the occurrence of such activity. These schemes are not actually illegal, however they are considered to “go against the spirit of the law”

Tax Reduction companies, which refuse or fail to provide the government with the details of their clients- those who are engaged with tax reduction. In addition, these companies will be required to explain and show how these tax reduction schemes actually work.

The Treasury minister explained that the definition of tax avoidance are ambiguous. There needs to be taken action against such operations and everything should be legally proclaimed. The new laws will clarify what is “right” and “wrong” with tax avoidance practices.

In a speech, Gauke stated:
“We are building on the work we have already done to make life difficult for those who artificially and aggressively reduce their tax bill. These schemes damage our ability to fund public services and provide support to those who need it. They harm businesses by distorting competition. They damage public confidence. And they undermine the actions of the vast majority of taxpayers, who pay more in tax as a consequence of others enjoying a free ride.”