Since our inception in 2000 we’ve been assisting our employees with their tax obligations. Whilst we may be dab hands at all things tax, we understand that it’s not the same for everyone.
A report commissioned by the government into the use of tax avoidance schemes by contractors highlighted the confusion amongst recruitment agencies and contractors regarding the differences between tax planning, tax avoidance and tax evasion.
To clear this up we have explained the terms below:
What is tax planning?
Tax planning is reducing your tax liability using legitimate means. For example, putting money into an ISA or taking advantage of other tax reliefs that are available to you. Accountants and tax advisors will often be able to help to save tax using legitimate means, this is tax planning.
What is tax avoidance?
Tax avoidance involves bending the rules of the tax system to gain a tax advantage that the government never intended by operating within the letter, but not the spirit of the law. It will often involve complicated artificial arrangements, the sole purpose of which is to avoid tax. Tax avoidance scheme promotors can be very persuasive often offering a high take home pay with very little administration whilst falsely claiming to be HMRC approved.
The government is investing a significant amount of money in tackling tax avoidance and it pays to stay well away from these schemes. Should you be investigated HMRC will demand payment of the tax avoided plus interest and penalties.
What is tax evasion?
Tax evasion is where information is deliberately omitted, concealed or misrepresented to reduce the tax payable. This could be deliberately omitting income from a self-assessment tax return. It is illegal and those committing tax evasion could face criminal proceedings.
Support from Parasol
At Parasol, we actively engage with the recruitment industry to help raise awareness of tax avoidance and evasion schemes through our role as board members of the FCSA. If you have concerns about these types of schemes, or would like advice on how to spot them please get in touch with our expert team.