Not letting the tax tail wag the dog
Her Majesty’s Revenue and Customs do not like tax avoidance and whilst we all try to do what we can to reduce our liabilities to tax through fair means, we must always be aware that not everything that is promoted as tax efficient is always with the agreement of the taxman.
News comes just this month that Wayne Rooney and Jeremy Paxman are some of the people that may allegedly have to find some pretty hefty sums following an investigation by HMRC into a film investment scheme through which they invested in 2003/04. HMRC have now ruled that the scheme was established for the primary purpose of tax avoidance and not film investment and as such the tax reliefs provided at the time must be repaid (plus interest and fines).
A number of schemes get promoted each year on the basis of being a ‘legal way’ to avoid tax however, many of these look to exploit loopholes in legislation which are usually closed as fast as they are found. With the Treasury in such desperate need for cash, we can expect HMRC to sharpen their teeth and look for any opportunity to squeeze further.
There are many things that we can do to enhance tax efficiency without risking stepping over the line but the overriding factor to consider is that the underlying investment must be in our benefit and is not just being made to reduce a tax liability. We talk about ensuring that ISA allowances are utilised wherever possible as this a the most tax efficient manner of investing but if, for example, there was also the option to reduce a loan or credit card debt, it probably would be sensible to do this rather than just put money into an ISA as it is more ‘tax efficient’. The golden rule here with all financial planning is to consider the benefit to you first and then consider the tax implications rather than the other way around.