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Keeping within the tax law

It is interesting how words that used to have one meaning have shifted into something else. There are numerous examples around, but when I was working in a tax department many years ago, tax avoidance was proper and legal and tax evasion illegal. As Dennis Healey, the former Chancellor of the Exchequer said: 'The difference between tax avoidance and tax evasion is the thickness of a prison wall.'

We all learned the quotes from Lord Tomlin in a 1936 case involving the Duke of Westminster in which he stated: 'Every man is entitled if he can to arrange his affairs so that the tax attaching...is less than it would otherwise be...he cannot be compelled to pay an increased tax.'  Last week, David Perrin a professional tax adviser was convicted of cheating the Revenue and will be sentenced shortly. Most reports of his wrongdoing including the professional reports refer to the tax avoidance schemes he set up.

So what has changed? When did tax avoidance become liable to criminal action, and what does this mean for the GP arranging their affairs in the most efficient manner?

A recent development has been the invention of schemes designed purely to avoid tax. The scheme that David Perrin set up involved his clients getting gift aid relief from charitable donations of shares that were in fact virtually worthless. This is a million miles from what Lord Tomlin was thinking when he talked about what we think about tax avoidance.

Clever people will keep coming up with schemes to avoid tax, especially while tax rates are so high, and HMRC will keep attacking them. For the GP, arranging your tax affairs in the most efficient manner is always going to be sensible and acceptable, but we need to keep our minds on this.

Talking of words, when is a partnership not a partnership? I saw a relatively new client last week. The two GPs work together, have joint bank accounts, are paid in joint names by the PCT, employ their staff together and yet the former accountant is treating the two GPs as sole traders, with each of them producing their own accounts and ignoring the 'partnership' accounts.  Well, I think it is a partnership, and I think HMRC will think it is a partnership, and the effect of not recognising it as such is at least that no partnership returns have been submitted – which attracts a fine. The two GPs accept they are in partnership, so we just need to go back to nice Mr HMRC and explain this...

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