There may have been a time when tax avoidance was tolerated; a time when the taxman was more concerned with those guilty of straight up tax evasion. But those days are now in the past, as evidenced by the faces of tax dodgers splashed over the tabloids in recent years — politicians and TV celebrities alike.
However, it isn’t only the rich and famous that need to be careful. Small business owners need to start paying more attention too.
HMRC is cracking down on anything it views as “against the spirit of the law”, resulting in the collection of an additional £3.4bn in VAT underpayment in 2016-2017. No doubt encouraged by this substantial haul, HMRC has pledged to continue its scrutiny of SME tax returns.
To avoid falling foul of this crackdown, small businesses now have to be much more vigilant when it comes to tax matters. For accountants, it’s an ideal opportunity to ensure that clients avoid both accidental – and not-so-accidental – tax avoidance.
Education is key
It’s possible that some of your clients won’t have the first clue about tax avoidance or its implications. Some of them may have a little knowledge but be working on the assumption that it’s all legal and above board. Educating them on the tax avoidance basics is a priority.
Crucial points to share
- HMRC is getting tough – any scheme that claims to help businesses reduce their tax liability is subject to investigation.
- It can be hard to recognise a tax avoidance scheme, but the government advises people to be wary of schemes that sound too good to be true, those that offer seemingly huge benefits with very little cost to you, and anything that offers payment in the form of a loan that you won’t be asked to pay back. Any scheme that requires moving money out of the country should definitely set those alarm bells ringing.
- Clients may come across promoters who claim that having a Scheme Reference Number (SRN) shows that they are HMRC approved. They aren’t, and a world of trouble is likely waiting for anyone who engages with such a scheme.
- Inform clients that responsibility lies with them. HMRC has made it clear that ignorance or misunderstanding are not going to be accepted as get-out-of-jail-free cards – whether you entered into a tax avoidance scheme by accident or with full knowledge, you’ll have to pay the price.
Highlight the penalties
Demonstrate to your clients that getting involved in a tax avoidance scheme simply isn’t worth the risk. If caught (and the chances are high that they will be), they will have to dig pretty deep to come up with the money they owe. Not only will they be served with a tax bill – in the form of an accelerated payment notice that stipulates they will have to pay the full amount of tax owed upfront (along with any interest) – they will also be responsible for covering hefty legal fees and may face penalties of up to £5,000.
The penalties for tax avoiders go beyond the financial. Offenders will face prosecution and possible conviction and will likely be named and shamed in the media to boot. They will forever be on the taxman’s radar and all of their future tax affairs will be scrutinised.
Let clients know you offer expert advice
The whole issue of tax can be confusing for many business owners and the information they get from blog posts and googling will only carry them so far. Let your clients know that you’re available as both a sanity-check and a reliable source of information. If they’ve come across something that they think might save them tax and they’re not sure whether or not it’s a tax avoidance scheme, you can be there to keep them on the right side of the law.
Ultimately, your clients are responsible for their own tax affairs but you are ideally placed to ensure that they don’t fall for any “too good to be true” schemes. Help them focus on the legal and ethical ways to reduce their tax bills. After all, when everyone pays their taxes, we all benefit.
Find more information and accounting advice in the Clear Books accounting blog archives.