We have already seen evidence of this across the West Country with a regional taskforce targeting the recovery of £2.5m tax in a crackdown on the holiday industry. Across the UK, prosecutions for tax evasion have more than doubled over the last year, with a particular focus on middle-class professionals, such as doctors, lawyers and restaurant owners.
It is well known that tax evasion is illegal, but now public opposition to tax avoidance is increasing, as the super-rich and some high profile celebrities, such as Jimmy Carr, have been criticised for not paying their fair share of tax. Indeed, for many people struggling with benefit cuts, unemployment, low pay or poverty in retirement, both tax evasion and tax avoidance are morally unacceptable. As the gap between the rich and poor in our society continues to widen, this disquiet is only likely to grow.
Whilst I advocate ‘rendering unto Caesar’ and so ensuring diligent tax compliance, it is nevertheless important to distinguish between artificial contrived tax schemes and common-sense legitimate financial planning.
I suggest that clients should restrict tax mitigation to planning opportunities available to all taxpayers grounded in the law. Such an approach allows plenty of scope for most people to make significant tax savings, as well as avoiding the risk and potential consequences of a tax enquiry.
The starting point is to ensure that you make best use of tax allowances, exemptions and minimise higher or additional rates of tax. Typical planning may include the transfer of investments to a spouse who is a non-taxpayer, or pension contributions to gain valuable higher rate tax relief. Furthermore, it may be possible to make tax-free gains each year within the CGT annual exemption and re-basing the cost of investments to avoid a potential future CGT liability.
As well as pension plans, which remain a very tax-efficient long-term savings vehicle, ISAs are ideal for accumulating tax-free income in retirement. For more risk tolerant and experienced investors, Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCT) may be appropriate. Both these tax structures are approved by HMRC to facilitate investment in small young companies. Whilst not suitable for everyone, EIS and VCT investments provide capital for small UK businesses, creating jobs and a culture of entrepreneurs, which should lead to greater prosperity for all.
[Matthew Clark, Western Morning News, 8 August 2013]