What is a tax avoidance scheme?
A tax avoidance scheme is exactly what it sounds like – a structure designed to illegally avoid tax that is legally due on income, in order to maximise the amount of money a contractor takes home.
Legitimate tax planning through a contractor accountant is designed to use guidelines, allowances and tax breaks provided by HMRC, in order to minimise your tax liability. This is the role of any good contractor accountant – to maintain a proper understanding of legislation and make sure you are taking advantage of everything you have a legal right to.
Tax avoidance schemes go a step further. They misuse the UK tax structure in order to gain tax advantages which were never intended by HMRC, often by misrepresenting the source or destination of your income. HMRC are continually challenging these schemes and have taken the position that any misuse of tax legislation, not intended under the law, is illegal. Tax avoidance schemes are being aggressively – and successfully – pursued by HMRC.
How do I know if it’s a tax avoidance scheme?
There are many ways in which a business will seek to gain an unintended and illegal tax advantage for their contractors. We will provide information on some common warnings signs in this guide, but there is a general rule of thumb you can use;
“If it seems too good to be true – it is!”
HMRC will never ‘approve’ a tax avoidance scheme – or a legitimate service, for that matter. If you are provided with a scheme reference number by an organisation, with the claim that it proves they are “HMRC approved”, be wary!