Tax compliance, tax planning or tax avoidance?

While an increase in company creation is often cited as evidence of an improved entrepreneurial culture, accountants Wilkins Kennedy said a considerable number of the latest wave of companies could have been set up to achieve tax efficiency for the business owners.

Kevin Walmsley, partner at Wilkins Kennedy, said limited companies were increasingly being used as a shelter for higher rates of personal tax.

Ooooh, my.

“[However], people have become much more proactive with tax planning since the introduction of the 50pc headline tax rate last year.

“Replacing structures such as partnerships and sole traders by a limited company can be much more tax efficient.

By leaving the profits in the company and paying themselves a lower salary, business owners can avoid paying the top rate of income tax.”

Official figures show a total of around 400,000 one-person companies have classed themselves as self-employed while also being registered at Companies House, distorting the statistics on the total stock of businesses.

So the question becomes, is this tax compliance, tax planning or tax avoidance…..even tax abuse?

It\’s certainly not tax evasion because it\’s entirely legal.

It\’s a difficult one I agree. But we do have our moral lodestone, don\’t we now, one Richard J Murphy, one of the country\’s leading tax experts (and economists, forensic accountants and possibly much else). Given that he has organised his business affairs as a limited company, paying minimal directos\’ salaries and taking the profits as dividends, then we must of course conclude that this is tax compliance.

Absolutely nothing to see here at all, move along now.

3 thoughts on “Tax compliance, tax planning or tax avoidance?”

  1. It’s not avoidance, it’s common sense, of course. There is nothing in law that says people can’t arrange their affairs to keep their tax burden as low as possible. In fact we all do this. How about the myriad ways in which people can avoid inheritance tax with a bit of planning and donations to grandchildren and charities?

    One-person limited companies can fall foul of IR35 rules, which are designed to stop people avoiding tax by incorporating. These rules are anti-competitive, discriminatory and should be abolished, of course.

  2. “IR35 rules, which are designed to stop people avoiding tax by incorporating. These rules are anti-competitive, discriminatory and should be abolished, of course.” … and are being shown to have very few teeth, judging by recent tribunal cases. This is good.

  3. I though Ritchie has said that he had a Road to Damascus conversion and now sees the error of his former tax avoiding ways?

    Of course, not so much of a conversion that would have required him to pay back all the tax thus avoided, but hey ho, can’t have everything!

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