HMRC is sending out non-legally binding tax agreements. Know your rights!

HMRC has been criticised for sending a non-legally binding letter to a business owner accused of avoiding tax, requesting that they sign a pledge not to engage in such activities in future.

The action has been roundly criticised by tax experts as “schoolmasterish”, with one report in the Financial Times stating “it smacks of being told to write lines”.

While the letter expressly stated that it would have no future bearing on subsequent legal action or monitoring, Neal Todd, partner at law firm Berwin Leighton Paisner, believes that signing and returning this document would make the signatory a “hostage to fortune” should HMRC amend tax legislation and re-define ‘avoidance’ in future.

Despite tax avoidance being perfectly legal (unlike tax evasion, for which a hefty fine can be levied), HMRC has been given powers to root out schemes that are being taken advantage of. For instance, if an individual or company attempts to avoid tax by investing in a project that receives tax breaks but will not be fulfilled (such as investing in a film that will not be made), then HMRC are permitted to interject.

What is now termed ‘tax avoidance’ by HMRC is viewed by many business owners as shrewd financial planning. And, with HMRC often being found to have targeted smaller businesses and freelancers for auditing over larger corporations, it pays to get clear and relevant accounting advice and to know your tax rights.

If you want more expert advice on your tax arrangements and responsibilities to HMRC, contact our friendly team today.