What is tax avoidance?

There is a distinction to be drawn between tax avoidance and tax evasion. Tax evasion is illegal and describes a situation where someone acts to deliberately evade tax. This could include deliberately submitting false tax returns, falsely claiming repayments or reliefs or hiding income, gains or wealth offshore.

Tax avoidance on the other hand can describe a situation whereby a taxpayer takes advantage of the tax rules to reduce the tax they pay without breaking the law.

However, the lines between the two can get blurred as can be seen in the comments made by HMRC below. 

HMRC’s own guidance to help taxpayers spot the signs of tax avoidance, states that ‘tax avoidance involves bending the tax rules to try to gain a tax advantage that was never intended. It usually involves contrived transactions that serve no real purpose other than to artificially reduce the amount of tax that someone has to pay. It is not the same as effective tax planning but is often promoted as such'.

There is of course no restriction on taxpayers taking full advantage of tax reliefs and allowances in the legislation. This is not tax evasion [or tax avoidance in HMRC's terms] rather just paying the minimum allowable without breaking the law. Again, the lines between tax avoidance and tax planning can also get blurred. If you are approached to take part in a tax avoidance scheme, it is important to take proper professional advice and be aware that HMRC does not condone the use of schemes that they see as promoting tax avoidance.

Till fraud targeted by HMRC

In the Autumn Budget 2018, the government announced that they would launch a call for evidence to learn more about the nature and scale of till fraud. This specifically looked at businesses that deliberately undertake electronic sales suppression (ESS). ESS occurs when a business deliberately manipulates its electronic sales records in order to hide or reduce the value of individual transactions. 

This type of fraud is hard to spot as it aims to reduce the recorded turnover of the business and the corresponding tax liabilities, while providing what appears to be a credible and compliant audit trail.

At Spring Budget 2021, the government announced that new powers would be introduced to tackle ESS. These new powers were included in the Finance Act (2022) introduced in February this year.

HMRC officers have now started to target businesses across the country that are suspected of being involved in making, supplying or promoting ESS systems. These businesses now face fines of up to £50,000 and criminal investigations. HMRC is also actively targeting users of these systems who will also face having to pay back tax evaded, financial penalties and possible criminal convictions.

On 18 May 2022, 30 businesses were visited, including shops, takeaways and restaurants, across nine counties and two men and a woman were arrested in Nottinghamshire as part of a criminal investigation into the alleged supply of ESS software.

HMRC advice to counter spoof emails or texts

HMRC continues to warn of the ever-present problem of fraudulent phishing emails, suspicious phone calls and texts. These unwanted emails, phone calls and texts are being sent from all around the world and the fraudsters are continuing to find new ways to target unsuspecting taxpayers. 

These messages typically look to obtain taxpayers personal and or financial information such as passwords, credit card or bank account details. The phishing emails and texts often include a link to a bogus website encouraging the recipient to enter their personal details.

HMRC recommends that if you have the slightest doubt that an email or text is fake:

  • do not open attachments, they could contain a virus
  • do not click on links, they could take you to a fake HMRC site
  • do not disclose personal/confidential information
  • forward suspicious HMRC text messages to 60599 (charged at your network rate)
  • forward suspicious emails to the HMRC phishing team at, phishing@hmrc.gsi.gov.uk
  • check our security guidance: Dealing with HMRC Phishing and scams.

If you have suffered financial loss should contact Action Fraud on 0300 123 2040 or use their online fraud reporting tool.

UK Infrastructure Bank set-up

The UK Infrastructure Bank Bill, announced as part of the measures in the Queen’s speech, represents the final step in setting up the UK Infrastructure Bank as an operationally independent institution. The new Bank officially opened for business in June 2021 but the Bill will remove legal obstacles so the Bank can lend directly to local authorities and the Northern Ireland Executive for infrastructure projects.

The Bank, headquartered in Leeds, is tasked with accelerating investment into ambitious infrastructure projects, cutting emissions and levelling up every part of the UK. The establishment of the Bank is expected to result in a long-lasting public institution helping to drive growth across the UK.

Since its launch, the Bank has completed five deals, including financing the UK’s largest solar farm in South Wales, investing £100 million to provide high-capacity broadband to around 500,000 properties in hard-to-reach UK premises and a further £50 million to improve digital connectivity for rural homes and businesses across Northern Ireland.

The bank started with an initial financial capacity of £22bn made up of £12bn in capital and £10bn in government guarantees. This is expected to unlock more than £40 billion of overall investment in local government lending and to the private sector.

Access to cash protection increased

The new Financial Services and Markets Bill, announced as part of the Queen's speech, will provide increased protections for those still dealing with cash. Access to cash remains vital for many people across the UK, including the more vulnerable in society. The government has committed to preserving the use of cash as an option even as the UK becomes more reliant on digital banking and payments. 

The new Bill will support consumers by protecting access to cash and help ensure the continued availability of withdrawal and deposit facilities across the UK. The Bill will also enable the Payment Systems Regulator to require banks to reimburse authorised push payment (APP) scam losses, protecting individuals who are the victims of fraud.

HM Treasury has published the following listing of the main elements of the Bill:

  • Revoking retained EU law on financial services and replacing it with an approach to regulation that is designed for the UK. This includes the Solvency II legislation governing the regulation of insurers, which the government has committed to reform.
  • Updating the objectives of the financial services regulators to ensure a greater focus on growth and international competitiveness.
  • Reforming the rules that regulate the UK’s capital markets, the engine of the UK economy, to promote investment.
  • Ensuring that people across the UK continue to be able to access their own cash with ease.
  • Introducing additional protections for those investing or using financial products, and to make it safer and support the victims of scams.

More details will be available when the Bill is formally introduced.

Tax benefits of switching to electric cars

There are many benefits to encourage the use of electric cars including lower running costs, the environmental advantages and reduced noise pollution. There are also tax benefits to encourage the purchase of electric cars.

We have listed some of these benefits below.

The benefit-in-kind (BIK) due on company cars can be significantly reduced. For example, most electric cars will incur a BIK rate of only 2% in 2022-23. Compare this with the benefit charge for a gas-guzzler pumping out 160 g/km or more of CO2 which would be based on 37% of the list price when new. This means that company car drivers who switch to an electric car should see their tax bill significantly reduced. This also benefits employers who may see a significant decrease in Class 1A National Insurance charges.

Businesses purchasing electric cars can expect to recover more of their investment in direct tax relief. For example, businesses can write-off 100% of the cost of an electric vehicle against the profits of the year of purchase and there are no restrictions on the value of the vehicle. The car must be new and unused to qualify for the 100% relief.

Companies can also benefit from the super-deduction, which offers 130% first-year allowance on qualifying electric charging points for cars and vans. To qualify for the relief the company must use the charging point in their own business. This relief is available until 31 March 2023.

The road tax, or Vehicle Excise Duty (VED) rates for all fully electric vehicles have been reduced to £0 until at least 2025. There are reduced VED rates for plug-in hybrid electric vehicles (PHEVs).

There is no benefit-in-kind charge for the private use of a company van if the private mileage is insignificant. If the van is an electric vehicle, there is no benefit-in-kind charge even if the private mileage is significant.

There are also other benefits including an EV charge-point grant that provides funding of up to 75% towards the cost of installing electric vehicle smart charge-points, up to a maximum of £350 (including VAT) per household/eligible vehicle. Electric cars are also exempt from the London congestion charge when applying for a Cleaner Vehicle Discount.

Accountancy expenses arising out of an enquiry

HMRC’s internal manual offer some revealing insights as to the treatment of accountancy expenses arising out of an enquiry. As a matter of course, HMRC allows companies to claim a tax deduction for normal accountancy expenses incurred in preparing accounts or accounts information and in assisting with preparing Self-Assessment tax returns.

In respect of accountancy expenses arising out of an enquiry HMRC’s manuals state the following:

Additional accountancy expenses arising out of an enquiry into the accounts information in a particular year’s return will not be allowed where the enquiry reveals discrepancies and additional liabilities for the year of enquiry, or any earlier year, which arise as a result of:

  • negligent or fraudulent conduct or
  • for periods beginning on or after 1 April 2008 where the filing date for the return is on or after 1 April 2009, careless or deliberate behaviour.

Where, however, the enquiry results in no addition to profits, or an adjustment to the profits for the year of enquiry only and that adjustment does not arise as a result of:

  • negligent or fraudulent conduct or
  • for periods beginning on or after 1 April 2008 where the filing date for the return is on or after 1 April 2009, careless or deliberate behaviour

the additional accountancy expenses will be allowable.

This guidance was originally published in Tax Bulletin 37 (October 1998) and supersedes Statement of Practice SP16/91 which applied to pre-SA periods.

Get help with childcare costs for Easter

As the Easter holiday approaches, HMRC is reminding parents that they may be eligible for Tax-Free Childcare (TFC) to help pay for regulated childcare, including holiday clubs and other out-of-school activities.

The TFC scheme can help parents of children aged up to 11 years old (17 for those with certain disabilities). The TFC scheme helps support working families with their childcare costs. There are many registered childcare providers including childminders, after school clubs and approved play schemes signed up across the UK. Parents can pay into their account regularly and use their TFC allowance towards the cost of holiday clubs, before and after-school clubs, childminders and nurseries, and other approved childcare schemes. 

The TFC scheme provides a government top-up based on parental contributions. For every £8 contributed by parents an additional £2 top up payment will be funded by Government up to a maximum total of £10,000 per child per year. This will give parents annual savings of up to £2,000 per child (and up to £4,000 for disabled children until the age of 17) in childcare costs. 

The TFC scheme is open to all qualifying parents including the self-employed and those on a minimum wage. It will also benefit parents on paid sick leave as well as those on paid and unpaid statutory maternity, paternity and adoption leave. To be eligible to use the scheme, parents will have to be in work at least 16 hours per week and earn at least the National Minimum Wage or Living Wage. If either parent earns more than £100,000, both parents are unable to use the scheme.

HM Treasury’s Exchequer Secretary to the Treasury, said:

‘There are lots of brilliant holiday clubs and childcare providers to help working parents during the Easter holidays, and Tax-Free Childcare is a great offer that can help cut the childcare bills.’

Rural pubs community funding

The Department for Levelling Up, Housing and Communities has published the list of successful bidders from the reopening of the first round of the Community Ownership Funding. This brings the total level of funding in the first round to almost £8m. Thus, helping communities across the UK take ownership of assets and amenities at risk of closure. In total, the government has committed to funding of £150m until 2024-25.

The funding round has helped rural pubs in areas such as West Cornwall and Melton Mowbray placing them into community ownership with the support of local people.

The government also announced funding for a sports academy in Northern Ireland, a community centre in Scotland, an historic chapel in County Durham and a village shop and post office in Dorset.

The Secretary of State for Levelling Up said:

‘Pubs, historic buildings and sports clubs form a vital part of our heritage and for too many places they are a disappearing part of the local community. That is why we are helping local people take control of these beloved community assets, which would otherwise be lost.’

Scammers target Self-Assessment taxpayers

Fraudsters are continuing to target taxpayers with scam emails, texts and calls following the deadline for submission of Self-Assessment returns for 2020-21.  In fact, over the last year, HMRC received more than 570,000 reports about suspicious HMRC contacts. 

A number of these scams purport to tell taxpayers they are due a fake tax rebate or tax refund from HMRC and ask for bank or credit card details in order to send the fake tax refund. The fraudsters use various means to try and scam people including making contact by phone calls, texts or emails. In fact, fraudsters have been known to threaten victims with arrest or imprisonment if a bogus tax bill is not paid immediately.

HMRC’s has a dedicated Customer Protection team to identify and close down scams. The team seeks to identify suspect emails before they reach the taxpayer. Since 2017, these technical controls have prevented 500 million emails from reaching taxpayers, but the problems continue as the fraudsters adapt and try new methods to evade capture.

Taxpayers should also try and recognise the signs of fraud to avoid becoming victims themselves. For example, genuine organisations like HMRC and banks will never contact customers asking for their PIN, password or bank details.

If you think you have received a suspicious email claiming to be from HMRC you are asked to forward the details to phishing@hmrc.gov.uk. Suspect texts should be sent to 60599 and there is a form on GOV.UK that can be used to report suspicious phone calls. If you have suffered financial loss, you should contact Action Fraud on 0300 123 2040 or use their online fraud reporting tool.