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HMRC and The K2 Scheme 22/06/12

Comedian Jimmy Carr has issued a statement apologising for his "terrible error of judgment" in using a tax avoidance scheme.

He is said to be one of more than 1,000 beneficiaries who shelter some £168m from the taxman each year using K2. HM Revenue and Customs (HMRC) said the K2 scheme was already under investigation.

There are a lot of rash statements being made about whether or not the K2 tax avoidance scheme used by Jimmy Carr was "legal".

The implication is that if it was not, it was a bad thing to do - obviously. And if it was "legal", well, that is OK then, even if Prime Minister David Cameron says it was "morally wrong".

The moral dilemma of whether it is Tax Avoidance or Tax Dodging was echoed by Ed Miliband, the Leader of the Opposition, who said: "I'm not in favour of tax avoidance obviously, but I don't think it is for politicians to lecture people about morality."

Stuart Coleman, Manager of the Tax Department of ABDS says:
“Unfortunately, tax is a bit more complicated than that. Tax evasion is the illegal thing. It happens when people deliberately do not pay the tax they should. It is criminal. Tax avoidance is the arrangement of a taxpayer's affairs in such a way as to pay the least amount of tax legitimately.”

HM Revenue and Customs (HMRC) is referring to K2 in the category of tax avoidance. Under normal circumstances, schemes such as this are registered with HMRC, and if they decide the scheme is not acceptable, then the tax payer would have to hand back the difference in unpaid tax and possibly incur penalties.

Tonmoy Kumar, Manager of the Accounts Department of ABDS says:
“HMRC treat the underpayment of tax as a mistake. The scheme could take advantage of an obscure loophole, which, once discovered, would be rectified by legislation. The scheme's users would get away with it until such an order was made.”

Another phrase being used is "tax abuse" which, confusingly, can be applied to both evasion and avoidance.

A tax avoidance scheme which HMRC finds to be a blatantly artificial construction to dodge tax could be an abuse.

New legislation to deter such schemes is being planned. How affective they will be, we will wait and see.

ABDS of Southampton For all of your Personal and Corporate Tax Planning.

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail: abds@netaccountants.net

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