Avoiding Tax Seems To Be A National Pastime

HMRC seems to have gone quiet in a number of cases I am involved with. I suppose they have been concentrating on Brexit for some time now? As Sir Rupert Jackson said in his recent Expert Witness Institute speech …the fragmented political system is currently not over-burdened with talent… which has an inevitable knock-on effect into the public sector.  Given the UK’s uncertain commercial and economic future and problems with court administration it is anyone’s guess how efficiently tax evasion cases will be dealt with over the coming months.

We all hate paying our tax, but know it has to be done. We all wish that the tax system was fairer, but we must live with what we have. What we do is to make sure our affairs are managed carefully, and utilise all the legitimate tax breaks that we can.

As a forensic accountant specialising in contentious financial matters I often assist businesses and individuals that have come under the scrutiny of the tax authorities. This does not mean that I provide advice on how best to avoid paying tax. My task is to argue what is the “right” amount of tax to be paid.

I normally do not consider the specific intricacies of applying tax legislation, but I do look at the accounting aspects of income and expenditure – essentially calculating what level of income or profits need to be taxed.

Proposing the correct levels of tax to pay is important in cases where a taxpayer has been short changing the Revenue. When the authorities discover tax evasion they naturally investigate the suspect at length and often go back 10 or even 20 years.

You might have made accurate disclosures to the Revenue every year except for a small “memory lapse” when you purchased that buy-to-let property for your pension portfolio three years ago. Not only do you have to provide accurate accounts for your rental property, you might also find that you have to justify in detail every other bit of both your taxable and non-taxable income going back many years. This means explaining that cheque received from your parents as a gift on the occasion of your child’s birth or that credit card advance seven years ago!

If you can’t substantiate the source of every sum you have borrowed from a friend, every deposit of £2 coins you have been saving into your holiday fund or even prove that deposits are premium bond wins, you might be asked to pay tax on this otherwise “tax free” income!

Unfortunately, such are the tax gathering powers of the Revenue that they can make assumptions regarding your income. The onus is on the taxpayer to provide adequate records of his or her legitimate income and allowable expenditure. Could you provide accounts showing that the deposits from Paypal ten years ago were the proceeds of when you had that “clear out” and sold the contents of your attic or loft through eBay? And if you buy and sell second hand cars now and then, then any deposits of cash into your bank will be treated as taxable income.

If you can’t explain each credit or justify every bit of allowable expenditure over many years there is a high likelihood that the Revenue’s assumptions will be upheld at a tribunal or court hearing and you will incur a huge tax bill that includes tax, interest and penalties payable on income that should otherwise have been tax-free.

So the danger of trying to escape a little bit of tax, is having to explain the whole of your finances in detail. Not many people are able to go back over many years and remember their finances accurately. This is why a forensic accountant has to reconstruct the accounts and fill in the missing bits!

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