Effective tax planning is getting harder.  Your professional advisers can help you understand the new rules so that you can make more informed decisions.

Let’s start at the more aggressive end of the tax planning spectrum. We’re all aware that there are legal schemes which are designed to help high-net-worth individuals avoid tax. In the good times – before the 2007/8 crash – we introduced a few of our clients to them. After all, profits were high and so was the tax burden. Understandably, people were looking imaginative ways of reducing their bills.

In times gone by, it was pretty much accepted by HMRC that a very small proportion of high-earning taxpayers were going to make use of such schemes. The usual approach was to let the schemes run and then ask for changes in legislation to close any loopholes for the future. This meant the Revenue didn’t have to waste undue time and resources.

The DOTAS (Disclosure of Tax Avoidance Schemes) rules, when they were introduced in 2004, changed the landscape quite considerably. From then on, any tax scheme had to be registered and clients would have to put the relevant DOTAS number on their return. It signalled the start of a regime that was going to become progressively tougher for tax payers.

More general tax planning has become harder too. The recent changes to the LLP structures, for instance, have restricted the ability to pay 20% tax on profits. Furthermore, with the introduction of Advanced Payment Notices and the ability of HMRC to dip into your bank account – without the need for a third-party debt order – and take money they believe belongs to the Treasury, the advantages of using legal tax schemes are being greatly eroded. One payments have been made (or taken!) under an APN, you are then only able to recover the sums involved once a court has ruled your tax planning to be legal, a process which could take years.

One response to some of these developments might be to hunker down and wait for the storm to pass. Accountancy practices could decide that they would rather have a thousand smaller clients with straightforward tax arrangements than a handful of larger ones involved in complex schemes. But they are still caught between a boulder and a hard place. For example, there was a legal case not so long ago in which an accountant was sued for not telling their client about a tax avoidance scheme. We actually have a duty to inform our clients of what’s available and explain any risks and potential downsides. Ultimately, the choice then lies with the client.

John Archbold, Partner