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Tax avoidance - top tips

10th Nov 2010
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A few years ago I visited an IFA who had been had a practice in the north of the country in an area that was surrounded by coal mines (or former coal mines to be more precise). He had 40 clients who were miners all of whom visited him with near enough the same story which went something like “we hate the government, we so hate them that we want out of the government pension scheme because we don’t trust them not to mess up in the same way that they have messed up the coal mining industry and our lives”. The IFA then sat the clients down explained to them the risks and rewards of transferring pension funds but like some other IFAs the documentation was a bit weak.
Well then annuity rates plummeted, the pension review happened, people got wise after the event, the value of the miners pension was roughly half what it was worth on the day they transferred (and probably a quarter now – ouch) and they conveniently forgot all the risk warnings he had given them and smelt compensation and sued – or more particularly lodged complaints under the pension review. 
The IFA then notified his PI insurers who reminded him that his excess was £4,000 per case and his upper limit for claims was £1,000,000. Well this poor IFA was looking at £160,000 minimum ie £4,000 x 40 cases and more likely £760,000 ie £160,000 plus £40,000 (average compensation) x 40 = £1,600,000 less £1,000,000 upper limit.
Well the upshot of the story was the IFA did an IVA, the PI insurers refused to renew his cover and he lost his livelihood, and the property portfolio that he built up over 20 years. 
It seemed to me that tax avoidance schemes are a bit like this. The potential for downside is enormous – the potential for upside is also enormous but you need to be careful. Should I do them – the answer is probably yes not least because for some clients they are worth the risk but they are not for the faint hearted. I have had a look at quite a few and most of them seem to fail the test “is this on a commercial basis with a view to profit” or the series of pre-ordined steps seems so clear that any judge worth his salt would throw them out very quickly. Well I went to see a tax avoidance film partnership scheme the other day which seem to me to fit the bill – it was low risk and the promoters seemed to have thought through all the issues clearly. However I thought I would publish my top tips on tax schemes just to help.
Ten top tips for using tax avoidance schemes
1              Make sure you understand the scheme – it is your job to help the client take an informed decision and if you do not understand it then how can you explain it to the client.
2              Risk rate all of the schemes you use.
3              Make sure that the risk profile of the scheme matches the risk profile of the client.
4              Make sure that you confirm in writing the risks to the client – it is very rare a scheme is risk free!
5              Review the PI implications – if the PI costs are higher than the fees you earn then think again and refer the client on.
6              Consider the attractiveness to potential new clients – it the fact you do tax avoidance helping you to attract the right sort of clients – if so it probably makes it all worthwhile
7              Review the what happens if it goes wrong, what are the penalties, what will be the client loss, will the PI insurers fail to provide you with cover and will you lose your livelihood – if so you may like to think again
8              Involve an IFA who understands the investment risk associated and can help you risk rate the client – this is probably the best reason for using tax avoidance schemes – it enables you to set up cross referral relationships with IFAs.
If after reading the above you still want to go ahead with a scheme - I think I have found one that might fit the bill (a film partnership scheme that is relatively low risk). I can be reached via http://www.smithkennedy.co.uk/outsourcing.asp if you want more information.
Alternatively, you may just prefer to keep to the low risk option doing bank reconciliations and incomplete records for clients – in which case give me a call if you are overloaded and I will see if my staff in India can help. Rates start from £5 per hour. 
Have fun!
Alan Kennedy
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By geoffmw
11th Nov 2010 06:08

The only genuine

tax avoidance schemes are the ones actually provided for in legislation.

Trying to fit thecase into legislation made for a specific purpose is asking for trouble and as you say needs apractitioner to have very deep pockets..

However I have had at least one case of refusing to accept a PI loss adjuster suggesting that a payment be made which I resisted and eventually ended up with tyhe erstwhile cltent getting nothing and only cost the PI insurers the loss adjusters time (Of course it cost me time as well).

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By moneymanager
06th Mar 2013 16:49

IFAs?

Good post Alan

I knew a couple, both with the same FS arm of a merchant bank, and the Mrs transferred hundreds of dockers pensions down at Tilbury. She had a little brick office near the canteen and would waylay these guys as they trooped in. She virtually had them queing.

IVA? compensation? Shouldn't think so. Both upsticked to Spain!

On your thread, agree you have to assess all round.

Can I simultaneously agree and disagree with geoffmw. I think you mean that th eonly avoidance schemes (acceptable presumably to you) are those explicitly provided in teh legislation e.g. VCT/EIS. Disagree.

I do agree that the schemes must be provided for in the legislation otherwise they wouldn't work; would they? HMRC simply get ansy over the ones they really don't like but even those that should have to be in full compliance with provisions which is why you get compliance and tax barristers crawling all over them to fend of attack

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