As a business owner, you should aim to minimise tax. However, it is illegal for your business to avoid paying taxes. It can be hard to distinguish lawful attempts to minimise your tax liability from unlawful attempts to avoid paying the tax your business owes. Therefore, you should know the relevant law to ensure your business operates above board. This article will provide you with an overview of the anti-tax avoidance laws in England.\u00a0<\/p>\n\n\n\n
Bending tax rules in a way that is contrary to what the law intends may make you liable for tax avoidance. Most tax avoidance schemes employ elaborate and artificial transactions that produce no commercial value to any party to the transaction. <\/p>\n\n\n\n
For instance, company directors must pay income tax on any compensation they receive<\/a> for their service to the company. This is in line with general tax rules that govern all employees, as salaries and wages are taxable income. However, directors\u2019 powers mean they can authorise the company to lend money to others, including themselves. <\/p>\n\n\n\n Therefore, a common tax avoidance scheme Her Majesty\u2019s Revenue and Customs<\/a> (HMRC<\/em>) looks for is where directors authorise the company to lend them money at no interest. Later, the directors write this loan off. While directors are allowed to borrow money from the company, they cannot use this power to circumvent income tax rules. <\/p>\n\n\n\n Some additional examples of common tax avoidance activities include: <\/p>\n\n\n\n These are outlined in detail below. <\/p>\n\n\n\n Umbrella companies are commonly found in short-term and temporary engagements managed by a recruitment agency. Usually, if you are employed through an umbrella company, your employment contract will be with the umbrella company rather than the client of the recruitment agency that is paying your wages. <\/p>\n\n\n\n Because umbrella companies act as a mediator between you and your employer, recruitment agencies and contractors can use umbrella companies to disguise the source of income and the purpose of certain expenses. <\/p>\n\n\n\n If you contract through an umbrella company separately managed by a recruitment agency, you can unwittingly assist in tax avoidance. Most laws aimed at stopping tax avoidance require you to have a degree of knowledge that you are evading income. However, you can still be liable in some cases without acute awareness. <\/p>\n\n\n\n Another common tax avoidance scheme is where a company director misapplies money held on trust for employees (such as pensions or funds for employee share schemes<\/a>). <\/p>\n\n\n\n Usually, the director will use the money as a long-term, interest-free loan that may or may not ever be paid back. A recent Supreme Court decision ruled that such transactions amount to tax avoidance and are unlawful. <\/p>\n\n\n\n A close company is a legal term that, for practical purposes, refers to any private limited company owned by five or fewer shareholders. Most private companies in the UK are, therefore, close companies. <\/p>\n\n\n\n Because close companies tend to be owned by shareholders that also act as directors, the law restricts the kinds of transactions a director is authorised to make without paying tax. <\/p>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\nFurther Examples <\/h2>\n\n\n\n
Umbrella Payroll Schemes<\/h3>\n\n\n\n
Fraudulent Use of Employee Trusts<\/h3>\n\n\n\n
Transactions Involving Members of a Close Company <\/h3>\n\n\n\n