What Are Offshore Tax Avoidance Schemes?

Taxes serve an important purpose within an established economy and society, funding all different types of day-to-day life requirements. As a result, tax payments are a compulsory part of earning a wage, but some people have found ways around this system.

Finding ways to save money as an individual or as a business is always vital to survival, however, it’s easy to get mixed up in offshore tax havens that violate laws and financial requirements. To make sure you’re making the most out of your cash whilst keeping the tax authorities happy, it’s imperative you know the details of offshore tax havens and how this can easily blur into offshore tax avoidance.

To keep you up to speed, DBT & Partner’s team of experts has shared their knowledge to answer the key questions you have about offshore tax avoidance schemes, including:

  • What is an offshore tax haven?
  • Is an offshore tax haven legal?
  • Is using an offshore tax haven considered tax avoidance?
  • What are the penalties for tax evasion through an offshore tax haven?
  • What happens if I voluntarily disclose information about offshore accounts to HMRC?
  • What is the Serial Tax Avoidance Scheme (STAR)?
  • Who does the Serial Tax Avoidance Scheme apply to?
  • How can DBT & Partners tax evasion/avoidance solicitors help?

What is an offshore tax haven?

An offshore tax haven can also be referred to as an offshore financial centre and is usually characterised as a scheme or structure that’s sole purpose is to reduce the income tax people pay on their wages. This is to increase their take-home pay and usually involves an avoidance scheme is a structure which is set up for the sole purpose of reducing income tax and increasing pay by taking advantage of loopholes in the rules.

The country that they are in are usually ones with low or no corporate taxes that enable people in other countries to set up businesses there with few restrictions. They also often have limitations on what the general public can access regarding details about the companies themselves.

Is an offshore tax haven legal?

Offshore tax havens have the potential to be a criminal concern, but otherwise, they can be used in a way that’s both legal and legitimate.

If you’re a resident of the country in which the tax haven account exists and you have correctly declared all the taxable income you own, then your use of it is completely legal. This is also true if you run a business or own property in the same place that the account is in.

However, it’s incredibly important to remember that if you live and work in the UK then you must pay UK taxes, and there is no legal way to avoid this requirement.

Is using an offshore tax haven considered tax avoidance?

Similarly to their legality, offshore tax havens are slightly ambiguous in their legitimacy if you aren’t looking to commit tax avoidance. Certain uses of an offshore tax haven can result in tax avoidance, whilst others would be classed as a legal and legitimate way of using them.

What are the penalties for tax evasion through an offshore tax haven?

Using an offshore tax haven leaves you vulnerable to breaking the law and having suspicious bank account activity. This can lead to HMRC investigations into offshore tax avoidance concerns. Their tactics are regularly refreshed and revised and are the driving force behind employing more and more people to conduct investigations into offshore tax avoiders.

The importance of taxation is the motivator behind these efforts, which is also why the government introduced the Requirement To Correct. This scheme required everyone to ensure they had fully disclosed information about unpaid tax on income or gains that were held in offshore tax havens to HMRC by 30th September 2018.

From here, any individuals found to be using offshore tax havens, tax authorities were able to prove this with the financial information from these offshore accounts and issue the Failure To Correct penalty. This is a mandatory fine of 200% of the amount not disclosed to HMRC, and any other penalty that the investigators see fit.

What happens if I voluntarily disclose information about offshore accounts to HMRC?

The penalties handed out by HMRC to those who have not followed the Requirement To Correct can be lessened if the owner of the offshore tax haven account comes forward.

If they were to voluntarily disclose the relevant accounts after the 30th of September 2018, they will still face a Failure To Correct penalty, but it will be significantly reduced to reflect the honesty behind the disclosure. This reduction will also be impacted by how happy the person is to assist the investigation and their level of cooperation with HMRC.

If you’re considering voluntarily disclosing your accounts, you must speak with an experienced solicitor beforehand. A DBT & Partners specialist will be able to guide you through the process and support you to make the right decisions for your situation to get the most favourable outcome.

What is the Serial Tax Avoidance Scheme (STAR)?

The Serial Tax Avoidance Scheme (STAR) was incorporated into legislation by HMRC in an attempt to gain control over the number of tax avoidance schemes, such as offshore tax havens.

The legislation is described by HMRC as ‘forming part of a range of measures to clamp down on tax avoidance, to change the behaviour of those who engage in tax avoidance and to discourage them from using avoidance arrangements in the future.’

The overall aim is to impose sanctions and penalties on all individuals that are harnessing the power of tax avoidance schemes to reduce their liability to make tax payments.

Who does the Serial Tax Avoidance Scheme apply to?

Originally, the STAR was developed to only target serial tax avoiders, but it now applies to any taxpayer who has used one tax avoidance scheme in the past, such as an offshore tax haven.

Those who are located by the scheme will be given a warning and a suitable penalty and then monitored to ensure they are not using any other tax avoidance schemes.

However, if the individual uses another tax avoidance scheme at this time, HMRC may impose any of the following sanctions:

  • A penalty
  • Publishing your details as a serial tax avoided
  • Further sanctions

How can DBT & Partners tax evasion/avoidance solicitors help?

DBT & Partners are the go-to professionals for any individual or business facing a tax avoidance/evasion investigation. Offshore tax avoidance schemes such as tax havens can leave you vulnerable and in a difficult situation if HMRC becomes aware.

Choosing our team of specialists is the best way to get the most favourable result of the investigation thanks to our extensive experience handling these types of cases. We’re also able to advise you on ways you can take advantage of legal saving methods and point you in the right direction that will benefit you in the long term.

Get in touch with us today

Offshore tax havens and other tax avoidance schemes can be tempting, but can also land you in some trouble if they creep out of the legal loopholes they were designed to take advantage of.

Don’t struggle in silence – reach out to DBT & Partners’ team of tax avoidance scheme specialists and discuss your situation with our tax evasion solicitors for the most up-to-date and expert-driven advice today.

Tax Avoidance vs Tax Evasion

What is the difference between tax avoidance and tax evasion?

Understanding how tax evasion and tax avoidance compare is key to avoiding landing yourself in hot water or worse, committing a criminal offence.

However, the simple difference between the two is the legality behind the actions.

To make sure you have all of the details so you can better understand tax avoidance vs tax evasion, our expert team of experienced tax solicitors who work at the forefront of tax law have fully explained all of the differences and are available to support you.

What is tax avoidance?

Tax avoidance is defined as the action in which an individual or a business exploits the existing tax system legally. This, can be through means such as establishing an offshore company in ‘tax havens’, in which less tax has to be paid in comparison to the company’s actual home base.

Tax avoidance can look like other actions too, including keeping money in savings accounts such as an ISA to avoid having to pay income tax on any earnings. Other people may also choose to keep their savings out of a bank account and invest them into a pension scheme instead.

What is tax evasion?

However, tax evasion is much different.

Tax evasion is when individuals or businesses deliberately decide to commit a crime and allow illegal actions to take place to avoid paying tax. This is much easier to define, as to have committed tax evasion, there has to have been a clear decision to willfully commit a criminal offence to evade taxes. This is a serious crime and can result in fines, penalties and even jail time if a person is found guilty of tax evasion.

What is the difference between tax avoidance and tax evasion?

Whilst there are clear guidelines that distinguish tax avoidance vs tax evasion, there can be a fine line between the two if you’re looking to avoid paying tax without committing a criminal offence.

If the person or business who has gone to efforts to avoid paying tax through tax avoidance schemes, savings accounts or other methods has lied or hidden key data, figures and facts, this can then be deemed a criminal offence. For example, putting money aside into a savings account to lower a tax bill is legal however, if assets or information are concealed, this becomes tax evasion.

Is my business evading tax or avoiding tax?

Being crystal clear on how your business operates and handles tax payments, tax returns, tax rates, and tax liabilities are absolutely essential to ensure you’re staying on the right side of the law.

The examples below will help you to narrow down the difference between tax avoidance and evasion:

Tax evasion examples

  • Concealing/withholding/supressing key information from government institutes such as HMRC
  • Underdeclaring business earnings/receipts

Tax avoidance examples

  • Placing your residence in a low-income tax rate country
  • Setting up a company and paying dividends instead of an income
  • Gifting family members assets when you’re still alive to avoid inheritance tax

The penalties for tax evasion can vary

Of course, sometimes it can be difficult to distinguish between tax avoidance vs tax evasion, and some individuals and businesses can end up on the wrong side of the law as a result.

The penalties for tax evasion can vary, depending on how aggressive the tax evasion was, the amount of tax that was evaded and the amount of time it had gone on for. For those found guilty of tax evasion, the courts can order you to repay the tax and any interest accrued and issue further penalties, including jail time.

DBT and Partners can support you through tax evasion allegations

Having experts on your side is the best way to build the strongest defence against an allegation in order to get the most desirable result possible.

It can be difficult to understand the difference between tax evasion and avoidance, so if you’re facing an allegation, the legal jargon and complex processes can become confusing and difficult to navigate. Instead, rely on DBT & Partners, and get in touch to access the very best professional legal support.

As a niche law firm providing fraud and tax services from offices in London, Birmingham and Liverpool, you’ll be with the very best solicitors, legal counsel and expert accountants.

Disguised Remuneration Settlements: What You Should Know

Following a government crackdown on illegal Employee Benefit Trusts (EBTs) and wider Disguised Remuneration tax avoidance schemes, a deadline was drawn up whereby employees and contractors who had received funds via these methods could voluntarily settle any tax they owed as a result.

This deadline allowed recipients of Disguised Remuneration schemes to:

  • Come to a settlement with HMRC regarding the amount of tax they owe
  • Set up a payment plan over 5-7 years or more
  • Pay a lower rate of tax on any required loan charge
  • Avoid any extra costs if the scheme in question was to move to litigation

However, that deadline has now passed, and the only remaining options for recipients of Disguised Remuneration schemes are to repay their loan in full, or to pay a loan charge.

Despite this, however, many individuals are still asking questions regarding the loan charge of 2019, e.g. “should I settle?”

So what exactly is disguised remuneration, when was the deadline to settle your tax affairs, what is the loan charge 2019 latest, and how much is the loan charge?

Disguised Remuneration Settlement “Rules”

In 2011, a set of “rules” were applied by the UK government to seize control of these illegal schemes and to ensure that tax was paid correctly. These rules included the following orders:

  • Loans made by Employee Benefit Trusts in place of wages or salaries must be made subject to the same amount of
  • PAYE
  • and National Insurance Contributions
  • Only if the loan is repaid will those contributions be waived
  • Those with salaries under £50,000 who have stopped using Disguised Remuneration Schemes can spread the cost over at least 5 years, while those earning under £30,000 can do so over more than 7 years.
  • Those who fail to begin to settle their affairs with HMRC before the deadline must pay a loan charge in full before 31st January 2020.

In 2016, additional clauses were added, stating that this same legislation would also apply to loans made prior to 2011.

The above rules apply to users of Disguised Remuneration Schemes whose loans have remained unpaid to date, and who have failed to provide HMRC with information regarding the settlement of their outstanding taxes by the deadline.

They also affect employers who provided any loans involved in Disguised Remuneration schemes and had not settled their affairs with HMRC by the deadline.

When is the Deadline for HMRC Disguised Remuneration Settlements?

Loan charge legislation terms were drawn up in November 2017 to assist any recipient of Disguised Remuneration schemes in settling their tax affairs with HMRC.

The deadline for action of this kind to be taken was 5th April 2019, so if you were the recipient of a disguised remuneration scheme, the time to negotiate your position with HMRC has now passed.

Everyone who has outstanding loan balances and has not discussed a settlement agreement should send all information about your loans to HMRC by 30 September 2019.

How Much is the Loan Charge 2019 & Should I Settle?

The size of a loan charge applied to the recipients of a disguised remuneration scheme depends directly on the amount of Income Tax and National Insurance Contributions that would otherwise have been required to be paid during the tax year on the amount that was “loaned”.

All amounts received through a Disguised Remuneration loan will be combined and made subject to the charge at the same time. HMRC has quoted the median settlement as £13,000.

For those who know they are likely to be affected by the loan charge 2019 and wonder “should I settle my tax affairs with HMRC?”, it is now too late to do so.

This means that anyone who still owes tax repayments connected to Disguised Remuneration will be required to pay the loan charge in full, and if the scheme in which they were involved is made the subject of litigation, they may receive further fines or charges.

If you are in the process of settling and began before the 5th April deadline, the aforementioned November 2017 terms still apply to you and you can continue to work with HMRC towards a settlement.

I Missed the Deadline – What Can I Do?

When it comes to the loan charge, as of 2019, the latest ruling is that you are simply required to pay it in full. However, as of April this year, HMRC have extended their support services to provide assistance to those who are unable to pay.

For further information on this subject, you should call HMRC directly, or contact [email protected] for contractor loan schemes or [email protected] for all other disguised remuneration schemes. If you don’t arrange to pay the loan charge, you may be prosecuted for tax evasion.

It’s important to take immediate action if you’re concerned that you may need to pay the disguised remuneration loan charge. DBT & Partners can assist any individual who has missed the deadline to voluntarily settle their tax liabilities.