Tax break imminent for those on high earnings?

[Rupert_Baehr]

In which case I'll go right back to my original question and ask for an example of a tax avoidance scheme.

The ones given, which included pension saving, share schemes, running a limited company are not avoidance as you've just defined it.

 

Two simple tax avoidance schemes.

 

Your income is sufficiently high to put you in the top tax bracket.

 

1. You invest some money in a building society. The building society does deduct tax from the interest it pays you, but those deductions are made at a far lower rate than you would have to pay if you were paying tax on the interest directly. It is quite legal for you to invest in a building society and by doing so you have avoided paying tax at the higher rate.

 

2. You invest money in Gilts and tax-free corporate bonds. Any Capital gains you make are tax-free. Again, you have avoided tax.

 

Tax avoidance is not limited to income tax and CGT.

 

You own 2 cars and the annual road tax on each is £200. (I've no idea what the actual figures are - I haven't had a car in the UK for a while.)

 

You are required to pay road tax on each car. You decide you want to use one car from April to September inclusive and the other from October to March inclusive. You file a SORN for each car as it comes off the road and you claim back the road fund tax (or whatever they're calling it nowadays) for the period during which you do not use each vehicle. You have avoided paying tax. (The government won't complain if you leave a vehicle in your garage with a valid tax disc slowly running out.)

[Gordonb]

Two simple tax avoidance schemes.

 

Your income is sufficiently high to put you in the top tax bracket.

 

1. You invest some money in a building society. The building society does deduct tax from the interest it pays you, but those deductions are made at a far lower rate than you would have to pay if you were paying tax on the interest directly. It is quite legal for you to invest in a building society and by doing so you have avoided paying tax at the higher rate.

 

But you will have to pay it at the end of the tax year in your tax return

 

2. You invest money in Gilts and tax-free corporate bonds. Any Capital gains you make are tax-free. Again, you have avoided tax.

 

Tax avoidance is not limited to income tax and CGT.

 

You own 2 cars and the annual road tax on each is £200. (I've no idea what the actual figures are - I haven't had a car in the UK for a while.)

 

You are required to pay road tax on each car. You decide you want to use one car from April to September inclusive and the other from October to March inclusive. You file a SORN for each car as it comes off the road and you claim back the road fund tax (or whatever they're calling it nowadays) for the period during which you do not use each vehicle. You have avoided paying tax. (The government won't complain if you leave a vehicle in your garage with a valid tax disc slowly running out.)

 

You have not avoided paying tax at all with regards to the car scenario.

You only need to pay road tax when your car is on the road. If you take it off the road (SORN) then you are not required to pay road tax on that car.

Any different interpretation is wrong. You could say that you are avoiding tax by not having a car or not smoking or not gambling.

[Cyclone]

Two simple tax avoidance schemes.

 

Your income is sufficiently high to put you in the top tax bracket.

 

1. You invest some money in a building society. The building society does deduct tax from the interest it pays you, but those deductions are made at a far lower rate than you would have to pay if you were paying tax on the interest directly. It is quite legal for you to invest in a building society and by doing so you have avoided paying tax at the higher rate.

Not by the definition that taxman introduced you haven't.

It will also be tax evasion as legally you owe the additional tax

Savings interest normally has tax taken off at 20 per cent before you receive it. If you're a higher rate (40 per cent) or additional rate (50 per cent) taxpayer, you'll owe tax on the difference.

So that's that one debunked.

2. You invest money in Gilts and tax-free corporate bonds. Any Capital gains you make are tax-free. Again, you have avoided tax.

This isn't avoidance by the definition that taxman gave though as it is precisely what the government intended.

It's no different to putting money in your pension, nor is it somehow limited to the rich, anyone can go out and buy a couple of £100 of gilts today if they wish.

 

Tax avoidance is not limited to income tax and CGT.

 

You own 2 cars and the annual road tax on each is £200. (I've no idea what the actual figures are - I haven't had a car in the UK for a while.)

 

You are required to pay road tax on each car. You decide you want to use one car from April to September inclusive and the other from October to March inclusive. You file a SORN for each car as it comes off the road and you claim back the road fund tax (or whatever they're calling it nowadays) for the period during which you do not use each vehicle. You have avoided paying tax.

I think you might be taking the word to literally and possibly haven't read the entire thread.

Using the literal definition I1L2T3 is guilty of tax avoidance through his pension investments (as are most of us). But according to taxman avoidance is defined by HMRC as being an unintended use of legislation rather than the intended function.

[taxman]

I've just checked our Avoidance Group pages. In the year 2011 so far there have been 42 new avoidance schemes set up, to HMRC's knowledge.

 

They mostly target very obscure and specific pieces of legislation and as such, I would suggest, are a bit beyond the normal, tax paying public.

[Rupert_Baehr]

Just one?

 

Shell companies, offshore trusts and companies, offshore accounts etc... etc... etc..

 

There is a whole industry of accountants who are expert in precisely this kind of thing.

 

For example, diverting certain earnings into shell companies which then pay tax at business rates rather than personal rate. Very common practice in the banking world. Surprise, surprise.

 

If you're making 150k, you might have problems in diverting a part of your income into a shell company ... and the costs of running that company would probably outweigh any potential savings.

 

As for 'offshore accounts'- don't bother! If you are resident in (and have a tax liability in) one EU country and you have bank accounts in another, then the country which holds your bank accounts will pass the details to the tax authorities of the country in which you live.

 

Neither the Isle of Man nor the Channel Islands are parts of the EU, but both choose to comply with that particular EU law.

[upinwath]

Same old tories, why not make those in tax exiles pay?

 

Because we don't use services. Why should we pay for what we don't use?

Unless you'd like to pay for my dinner this evening even considering you won't be there.

My UK income is tax free because I don't use UK services. Tough if you don't like it.

[Rupert_Baehr]

I'm not a legal expert, but it seems to me that it may be possible to insist that directors of UK firms must be registered as domicile in UK.

Then at least the people who are employing thousands of british people would have a stake in the same country. It might mean that foreign owners are less likely to move call centres to india or close down manufacturing plants in UK in order to protect the American Workforce back near the main headquarters.. Where they may also be running for political office for example.

 

Highly unlikely. Effectively, you would be saying: "No foreign person or foreign entity can own a company in the UK."

 

If you could pass such a law, it might be very useful to certain persons, however.

 

Consider a non-UK resident (a citizen of a non-EU country who has no right of residence in the UK.)

 

If the laws in the UK are to apply equally to everybody, then that person would be as entitled as you - or anybody else - to set up a company in the UK. A '100 pounder', a small limited company with 100 one-pound shares.

 

But the directors of such are company are required by law to be domiciled in the UK.

 

So the person who formed the company could appoint a number (possibly a very large number) of his friends and family as directors of that company and they would all be required entitled to be domiciled in the UK.

 

That gets around any immigration problems quite nicely, doesn't it?

 

(Do you think that would be a good idea?)

 

If you say: "No, that's not what I wanted at all! - The directors of any company in the UK must be British citizens" then presumably other countries would adopt the same attitude.

 

You might find that the UK suddenly lost its (considerable) overseas assets.

[Rupert_Baehr]

I'd say a loophole is where you get round it by methods that were not planned when the rules came out, rather than an approved scheme.

 

 

The rules (laws) didn't just 'come out' - They were passed by Parliament.

 

Why didn't Parliament realise that the laws were flawed when they passed them?

 

You're not suggesting that the people who make the laws in the UK are incompetent, are you?

[barleycorn]

Interesting, I've never heard of that before.

 

Is it possible to modify the thought experiment to produce a curve based on tax rates that change depending on income though? The curve in the article is based on there being a flat rate of tax, which isn't the case.

 

IANAE but I suspect it would not be too difficult to do so, maybe with a third axis for income to give a 3D plot. Of course any such curve would be a pure estimate but does serve to illustrate that simply raising taxes may not necessarily increase revenue (and vice versa).

 

jb

[Rupert_Baehr]

...

Using the literal definition I1L2T3 is guilty of tax avoidance through his pension investments (as are most of us). But according to taxman avoidance is defined by HMRC as being an unintended use of legislation rather than the intended function.

 

You can't be 'guilty' of tax avoidance, because tax avoidance is legal and there is no guilt associated with performing a lawful act.

 

As far as 'unintended use' of legislation goes, if the law is inadequate, then it is up to Parliament to make laws which are adequate. That is, after all, what they are paid to do. If Parliament is unhappy with the law, Parliament should change it. If the public (or sufficient numbers of the public) are unhappy with the laws passed by parliament, then the public should change parliament. - Or at least petition the members and ask them to do what they are paid to do.

 

As Lord Denning said many years ago: "There is nothing in the law of England which requires any man to arrange his finances in such a manner as would enable the Inland Revenue to take the largest portion."

 

You are indeed avoiding tax by SORNing a vehicle. - Many people don't bother to do so, but that's up to them. Many people are too lazy to find out what they can do and even when they know what they can do, are too lazy to do it.

 

As for additional liabilities on Building society investments for high-rate taxpayers - you may want to check that one out with your professional advisors. I've no doubt that the government does lose money from high-rate taxpayers who invest in fixed-rate tax schemes (like those offered by building societies) but then again, it also makes money from less-astute people who are not liable to pay tax, yet save money in Building Societies and pay the fixed-rate tax.