In this age of austerity, taking steps to minimise your tax bill can be seen by some to be a little selfish. The Social Market Foundation reported last year that the gap between rich and poor has widened significantly in the last decade. So for the wealthier members of society to take steps to save tax, when such planning opportunities are less readily available for the less well off, perhaps increases the sense of unfairness.
We need to make a distinction here between tax avoidance and tax planning. Tax avoidance schemes are often complex and high risk arrangements that take advantage of loopholes in the tax regulations. A high profile example was the case of the comedian Jimmy Carr using a legal but, to some, morally questionable scheme several years ago which led to him paying as little as 1% tax on his earnings. HM Revenue and Customs has tightened up the rules on tax avoidance schemes in the last few years. Promoters of such schemes have an obligation to disclose them to HMRC and they have specialist task forces to seek out rule breakers. Many accountants and professional advisors would not recommend avoidance schemes to their clients. Leaving aside the ethical arguments, the risks are high with HMRC winning 80% of avoidance cases the taxpayer chooses to take to court.
Less adventurous tax planning however, is a sensible approach for many people, particularly those with relatively complex tax affairs such as GPs not in salaried roles. One of the most famous quotes in tax planning comes from Lord Clyde in a decision he gave in 1929, ‘No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores’.
So what kind of measures would come under the scope of tax planning? Well often this is taking advantage of tax breaks the government has put in place to encourage savings and investment eg maximising pension contributions, making use of annual ISA allowances, using business investment allowances etc. There are also planning steps for married couples and civil partners to spread asset ownership to make maximum use of capital gains exemptions and income tax allowances. Planning the timing of asset purchases and disposals across tax years can also be a useful planning step. Many GPs working on shorter term contracts have worked via their own limited companies. Drawing income in a tax effective manner from these companies is a sensible planning step.
With care and usually with professional support, GPs can keep more of their hard-earned income and gains. What they choose to do with the extra money is then up to them, rather than HM Government.