It used to be possible to reduce or even eliminate tax by finding and exploiting loopholes in the tax law. This was considered aggressive tax planning, and was not appropriate for many people, but it was legal and it often worked. A famous judge, Lord Clyde, even said this in Ayrshire Pullman Motor Services v Inland Revenue:
“No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores”.
The situation today is rather different.
It is still possible to exploit loopholes in the law, but this is now a lot riskier than it was a few years ago. Such opportunities tend to be short lived, as HM Revenue and Customs do their best to close the loopholes as soon as they find them. Those who use such loopholes are now required by law to tell the Revenue they have done so, which means it doesn’t take the Revenue long to find them. It also means they are holding a red flag up to the Revenue, effectively inviting them to come and do a tax audit! In many cases the Revenue do not even need to close the loopholes, as they have in their armoury something called the General Anti-Abuse Rule (GAAR). Although it is more complex than this, you can view GAAR as a piece of legislation which says you have to pay the tax anyway if you are simply using a loophole to try to avoid it! Courts are also far less willing today to allow taxpayers to get away with abuse. Add to all this the recent change in tax law which requires the taxpayer to pay up front any disputed tax, and you will see we are now living in a very different world.
As if the tightening of tax law were not enough, the public mood, fuelled by the popular press, is very much against anything that smacks of tax avoidance. What used to be perfectly legitimate is no longer regarded in the same light. It may be legal but it is now seen as morally distasteful. The combination of public mood and witch hunts conducted by the popular press can make abusive strategies very unwise, as Michael Caine, Gary Barlow, Wayne Rooney and Jimmy Carr all found to their cost.
However, the demise of tax loophole planning certainly does not mean it is no longer possible to be creative in designing tax planning strategies. There have always been a number of ways of planning one’s financial affairs, some of which result in lower tax bills than others. This is still the case. It is up to the taxpayer how to structure his or her financial affairs, and if that structure results in more tax being paid than is absolutely necessary HM Revenue & Customs are not going to complain. Equally the Revenue will not object if the taxpayer arranges things, in line with what parliament intended, such that less tax is paid. And the media are most unlikely to find anything “morally distasteful” in such strategies, unless you are a US presidential candidate!
There are often a number of different strategies you can adopt in order to reduce your tax bills. Some of them are still aggressive, and we would not normally recommend such strategies. Others are, however, not at all aggressive, and are in line with what parliament intended. You just need to be aware of what is possible, and also know which strategies are appropriate for your particular circumstances, rather than paying more tax than is necessary or even appropriate. Which is where we come in. Give us a ring on 023 8089 2111 to see whether we might be able to help you legitimately reduce your own tax bill.