Tax planning is in the news at the moment with Jimmy Carr having to eat humble pie. I have been briefed on the particular mechanism that he is alleged to be using (I thought our dealings with HMRC were confidential?!) and thought it high risk and convoluted. What happens under his scheme in summary is:
- A company in Jersey charges for his services.
- The client is not a director or shareholder of the company.
- One way or another, the money is lent to the client.
- The loan is not repaid.
I do know how clients can access these schemes but I would not advise using them, these are the drawbacks:
- They are aggressive; if you are aggressive to the Revenue it is fair play if they are aggressive to you.
- They might not work. They will be based on a tax barrister’s opinion, however his opinion doesn’t matter, it is the opinion of the court that matters and that could take years to establish. In the mean time you don’t know if you’ll have to pay the tax.
- They are expensive. Normally 20% of the income is sucked up in fees, they’re only economic for those earning over £100,000 or £150,000.
- We know in our hearts they are a cheat.
My position is relatively simple, my first duty is to obey the law, my second duty is to look out for my clients’ best interests, I can’t do these two things and also second guess what might be considered moral. I’ll leave morality to my clients and their Ministers. The government can only tax us in accordance with the law, a system established when King John signed the Magna Carter in 1215, this system is fundamental to our most basic rights as free English citizens.
Most of my clients want to minimise their tax, this is normal. I believe that it is legitimate to think about the rules as set out by Parliament and to plan structures and transactions to minimise income and maximise benefit. It is legitimate to assume that Parliament intended the rules to be followed as set out. I also assume that the government wants to influence our behaviour through its rather complicated rules and allowances. I will therefore continue to:
- Consider how dividends affect tax credits. I’ll assume they understood the consequences of the rules they devised.
- Encourage clients to pay dividends rather than salaries to minimise national insurance. Which I assume is deliberate to encourage enterprise
- Mitigate inheritance tax. E.g. making use of the governments 7 year rule on gifts, a relief the government has clearly and intentionally included.
- Consider the ownership of shares to minimise higher rate tax. The Conservative Party in opposition talked of shared allowances for married couples – this is it in action!
- Consider pension payments to reduce tax. Using complex rules the government has devised.
- And many other angles we look at when we review our client’s affairs
When the press have finished attacking the rich and famous maybe they will have a go at Accountants. I know what we do is fundamental to the collection of tax and the public services that depend upon it.
By the way please let me know if you have Jimmy Carr’s contact details, I understand he’s looking for a new accountant!
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