Compliance overview and Process

Tax avoidance or Tax evasion?

Tax avoidance or Tax evasion? The boundary between tax avoidance and tax evasion is often blurred, resulting in it being difficult to distinguish one from the other. Tax avoidance is the legal swerving around the bullets of tax liabilities, using imaginative yet permitted accounting. On the other, more aggressive hand, lays tax evasion.

Tax Planning or Tax Avoidance or Tax Evasion?

Evasion

Tax evasion is objectively illegal, and subjectively immoral. For example, a firm exaggerates their expenses or accounts for personal expenses as business expenses to minimise the amount of profit on which they are obliged to pay tax. This is classed as tax evasion because the firm is being deliberately deceitful about the value of their expenses. If you create an objectively false financial statement, there is a healthy chance that you are committing tax evasion.

Avoidance

On the safer side of this fence, we can find tax avoidance. Tax avoidance is often seen as immoral, though not against the law, thus isn’t prosecutable. When firms exploit the skill of creative accounting to avoid tax, they tend to ignore the direction of their moral compass. Some tax avoidance schemes, whilst being legal, can lead to contractors being handed 5-figure tax bills, potentially pushing their retirement plans back by several years.

Compliance

Several tax avoidance schemes are commonplace in the temporary worker sector, resulting in millions of pounds of lost revenue for HMRC. These include mini-umbrella company (MUC); loan scheme’ other disguised remuneration schemes. It can be difficult to identify these schemes, unless regular and thorough due-diligence checks are carried out on all parties in the supply chain. A

guide from HMRC on how to reduce your risk of using an umbrella company who operates a tax avoidance scheme can be found in this link Check your Umbrella Scheme

New Red Planet are an FCSA Accredited umbrella company, undergoing regular legal and financial compliance checks with industry leading tax and legal firms. If you are a contractor or agency and would like to discuss any aspect of this in more detail, please contact New Red Planet today to discuss the options available to you or your contractors.