The Institute of Chartered Accountants of England & Wales (ICAEW) has recently produced a helpsheet for its members titled, 'Aggressive Tax Avoidance Schemes – What You Need To Bear In Mind'.
Although the document is designed to advise chartered accountants about professional conduct and their duties to their clients it also features a section on identifying aggressive tax avoidance schemes that will be equally useful to freelancers who may be contemplating or tempted by the lure of what some of these schemes are offering.
The helpsheet provides some useful opening background as to what is tax evasion and what is tax avoidance:
'Is illegal and involves breaking the law; for example, hiding income or assets by failing to disclose information to the tax authorities, or attempting to take advantage of tax deductions for which the taxpayer is not eligible….'
'Is legal. Tax is a question of law and it's the Governments job to decide what legal tax planning arrangements it wishes to prevent. The scope for tax avoidance is increased by extremely complex tax systems that unintentionally create legal loopholes and potential anomalies in the tax law.'
Identifying Aggressive Tax Avoidance Schemes
Accountants are advised to form a judgement about any particular arrangements and consider whether it could be a tax avoidance scheme that may fail when challenged. Contractors should also take the same stance before committing themselves to promises of untold riches by firstly seeking professional advice.
HMRC spotlights page lists a number of typical characteristics of aggressive and, even perhaps, artificial tax avoidance schemes:
The ICAEW warns that although an adviser may not agree with all the characteristics identified by HMRC above (e.g. reasonable tax planning may well result in the taxation of income being delayed or tax deductions accelerated), the presence of one or more of these characteristics usually highlights the potential risks involved with a particular scheme and alerts the adviser (and also freelancer) to proceed with caution.