Category: News
Date: 02.03.2006
Printable version
Tax avoidance is costing the country an estimated £10bn a year in lost tax revenue, according to figures supplied by HM Revenue & Customs for tonight's Â鶹ԼÅÄ TWO Money Programme special No Tax Please, We're Rich at 10.00pm.
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Wealthy individuals and companies are using a variety of schemes to avoid paying taxes.
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They often exploit loopholes in the law, and are marketed by some of the biggest accountancy firms in the world.
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Now, HM Revenue and Customs has vowed to crack down on these schemes, and make tax avoidance "not worthwhile" within two years.
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Dave Hartnett, the Revenue's Director-General, tells the programme: "It matters a lot because it's expensive.
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"It's expensive for Governments and causes them to have to change their spending plans. It also matters because it's unfair."
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Many leading financial institutions have avoided employers' National Insurance contributions by paying employees' bonuses in gold, rather than cash.
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On a £1m bonus, this could save them £100,000 - which could then be shared with the lucky employee.
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When the Revenue clamped down on this device, City employers began to pay in a variety of other goods - diamonds, antiques, carpets, fine wines, and even hay and animal skins.
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All had the same purpose: to avoid tax. All were eventually stopped by the Revenue, but the accountants then came up with other schemes.
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One popular device is the 'employee benefit trust'. Instead of paying bonuses or big salaries directly - which would incur income tax bills - the money would instead be paid through a trust, often offshore.
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The trust would then forward the cash in the form of very long term, often interest-free loans. And with loans, there is no tax to pay. These schemes are called 'lend and forget'.
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The tax lawyer who claims to have come up with this device, Paul Baxendale-Walker, tells the programme that trusts like this can have limitless benefits for wealthy clients.
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He says: "They can provide almost anything tax efficiently. Very often tax free. For example they can buy second homes.
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"They can provide school fees, they can provide financial support for elderly relatives. Just about anything that a family could want by way of financial support during their lifetimes."
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Mr Baxendale-Walker also claims that trusts like this can even eradicate inheritance tax.
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For the Inland Revenue, the latest wave of tax avoidance schemes - 'loss creation' devices - was the last straw.
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Often highly complex, they nevertheless have a simple idea behind them. Accountancy firms sell 'losses' to set against clients' incomes.
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So with income apparently wiped out, there's no income tax to pay. But the losses are purely artificial - so the clients keep all their income, yet have still avoided income tax bills.
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The Money Programme has learnt that 'loss creation' schemes have cost the Inland Revenue - and the country - £2.5bn in avoided taxes.
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The Revenue has new powers to help stop tax avoidance. A new anti-avoidance unit has been set up by the Inland Revenue, and schemes have steadily been closed down.
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Most significantly, though, accountants now have to disclose their tax-cutting ploys to the tax authorities.
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Mr Hartnett has a stern warning for those who choose not to disclose new avoidance schemes.
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He says: "If people are behaving dishonestly here, then an issue can easily slip across from being a matter of legal avoidance, into one of dishonesty and evasion - and could become a criminal case for us."
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But Paul Baxendale-Walker says the Revenue's crackdown could be self-defeating. If the taxman gets too demanding, wealthy individuals and companies will simply relocate abroad.
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He tells the programme: "The more they squeeze the pips, then the more that the fruit is simply going to leave the tree."
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Notes to Editors
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Any use of the above must be credited to: The Money Programme Special report on tax avoidance No Tax Please, We're Rich! - Thursday 2 March, 10.00pm on Â鶹ԼÅÄ TWO.
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MB
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