Tax has pushed its way to the front of the global agenda. In the U.S., President Barack Obama’s administration is trying to stop businesses from using takeovers to move overseas in search of lower rates, a technique called inversion. In May, Credit Suisse Group AG (CSGN) agreed to pay $2.6 billion in penalties for helping Americans dodge taxes. The French President Francois Hollande has stepped up the country’s efforts to pursue tax evaders.
Tax avoidance by corporations and individuals costs European economies as much as 1 trillion euros a year. Tax avoidance costs UK economy £69.9 billion a year, it represents nearly 56% of the country’s total healthcare spend.
Year after year, individuals have used legitimate reliefs to pay little or no tax, according to the HMRC. But there have been many instances where individuals have resorted to illegal schemes to avoid paying taxes.
Tax avoidance is not the same as tax planning, which involves applying tax legislation in the way it was intended – for example saving in an ISA (Individual Savings Account) in the UK where you don’t pay tax on the interest.
In the case of individuals, tax avoidance usually takes the following forms:
• shifting income from the person who should really pay tax to someone else;
• moving transactions out of the UK
• changing the nature of transactions, in particular so that income is subject to Capital Gains Tax rather than income tax
• abusing the law on limited companies.
Chancellor George Osborne wants to strengthen existing rules by introducing a General Anti-Abuse Rule (GAAR). This aims to act as blanket legislation to allow the taxman to differentiate between what counts as responsible tax planning and what is abusive tax avoidance.
If you have questions regarding tax planning and want to ensure you use legal route to save effectively, then contact Gladstone Morgan tax-planning specialists at info@gladstonemorgan.com
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