An interesting case of ...
There have been recently a few calls for enquiry into so called "tax haven" or off shore investments used by the wealthy. With celebrities and influential people in the centre of it, it is argued that those who use it, should not only publicly apologise for it but also recognise what it does to our society. Those whose motives we do not know, call to assess carefully all who practice off shore investment and try to do anything with their money. The dispute stirs and divides, causes many questions to arrive, and treads on fine lines between tax avoidance (which is legal) and tax evasion (which is illegal).
Not many are aware that off shore investment is available to everyone and to many the subject is out of scope of interest as one has to have first of all funds available to invest. With regulations more lenient abroad, only some of those who do invest, may want to use off shore investment to their benefit, trying this way, to conceal the money from HMRC or other tax authority if they are domiciled and they are away from their country. So what is the difference between tax avoidance and tax evasion? Tax avoiding, cooperate or individual is the goal of individuals as well as businesses. It is in the prime centre of every well managed business, or individual finance that should strive to pay the least tax possible, still remaining compliant, as money making can not be forbidden by the law. On contrary tax evasion is bending the rules or going against the rules in order to make money. It is illegal and against our democratic society where in general people are happy to pay fair amount of tax as this was they contribute to public services that they enjoy and benefit from. Evading to pay is therefore theft from the society that should be penalised. However clear the definitions may seem of the two, very often the lines are blurred between tax avoidance and tax evasion and it is important to remember this and not rush to judge. As an example I bring here company Google who was not long ago brought before Public Accounts Committee for not really doing anything illegal, simply for playing with the rules established by the law makers. Maybe still legal, but is it ethical? we ask as always when these cases come to light.
HMRC can investigate randomly, if claims become suspicious or it can act on a tip off. Every manager of every corporation works diligently to save money and to avoid unnecessary taxation. In doing so they have to operate within the law and keep adequate records to back up their claims. Transparency of business must be reflected in the accounts. This was certainly not the case with Denise P who was in business as a quantity surveyor. She dutifully reported her income and expenses on her self-assessment tax return each year, until HMRC got suspicious of the amount of expense she claimed and launched an enquiry. As P ceased in business, she replied that she no longer had any records. However this was not a very smart move as she ought to have known that the law requires to keep records for at least the current and the previous four tax years. Even if Denise had no records it would have been sensible to have asked HMRC for more time to reconstruct or create records from the information available to her. As a next step HMRC issued a formal notice (schedule 36 Finance Act 2008) asking for 'information' or 'document' that will allow it to check the tax return which was met with response of sending a spreadsheet of figures strung together. HMRC concluded that the amounts which were all round sums, were estimates. The First -tier Tribunal (FTT) ruled in favour of HMRC.
Tip 1) It is important to remember that if HMRC asks for documents your clients are usually entitled to provide copies, duplications or digital versions. HMRC may ask for originals but only of it suspects fraud.
Tip 2) Despite what some tax inspectors say, some estimated figures in tax returns are permitted but only if they are based on facts and are sensible. For example, estimates should only be used if you can't find another way of proving an expense say for example for a cash purchase or one which you can't identify from your client's bank or credit card statements.
Tip 3) Clients should record transactions almost as they happen but there isn't currently any legal requirement for this.
Tip 4) If you find yourself in a situation like Denise, you will have to prove to HMRC or to a tribunal that your records were right. In doing so, you will have to make every effort to recreate them. Retrospectively created records for tax and accounting purposes are not ideal, but are certainly better than no records at all.
The quality of record keeping can cause someone to fall into the category of tax evasion.
An interesting case ... Your tax Assistant