Focus on Tax: Avoidance, SMEs and a new initiative.
According to HMRC, tax avoidance is on the decline. But is it actually? Or is it because they have simply just changed its name - now it is called “boundary pushing” by people using “opaque structures” to hide their real wealth.
Sounds ridiculous? But stick with me. After the naming and shaming of large corporates who were criticised for creative tax planning schemes that reduced their corporation tax, companies are said to be moving away from artificial and contrived plans. This is backed up by HMRC who said that the number of tax planning schemes disclosed to HMRC fell from 121 to 77 in the year to September.
According to Tolleys Taxation magazine, ‘It is estimated that, of the £32bn tax gap arising in 2010/2011, £19.2bn was a direct result of tax evasion or avoidance.’ HMRC are running several campaigns and taskforce’s to target specific high-risk trade sectors and encourage those with undeclared income or gains to come forward and make a full disclosure.
It seems that we are doing a substantial amount to chase down offenders, when part of the issue are the loopholes that are being exploited in the first place by innovative tax evasion schemes.
So let’s be clear. Tax evasion is illegally not paying tax, while tax avoidance is the perfectly legal practice of paying the bare minimum, and usually involves a lot of clever schemes and an off shore bank account. If we want a fair and level playing field we need to close the gaps for the ‘evaders’ and reduce the ease at which people and companies can avoid tax.
We are accountants, so naturally we like to save our small business clients money by looking at ways of reducing their outgoings, but we still ensure they contribute to economy.
One possible idea would be to make it compulsory for an SME (in the first 3 years of trading) to have a professional accountant. HMRC will then know that SMEs are getting valuable guidance on their tax laws which will help with the implementation of the law and reduce the amount of companies that try to do their own accounting and, as a result, fall hopelessly short of HMRC’s expectations.
If you like the way we think, then speak to your local AIMS Accountant and remember; good accounting is good business.