Are Offshore Schemes Morally Wrong?

The offshore tax avoidance scheme used by Jimmy Carr has created considerable debate within the accounting profession. David Cameron’s comments that offshore tax avoidance schemes are “morally wrong” were unfair to Jimmy Carr as the scheme he was using is legal. Rather than lambast Jimmy Carr over his tax affairs, the government would be better placed implementing changes to close these offshore loopholes and make them illegal. 

The recent clampdown on tax dodgers has received considerable media coverage but is beginning to blur the distinction between tax avoidance and tax evasion. To make the distinction, tax avoidance is legal and is generally the result of careful tax planning. Tax evasion represents deliberate attempts to defraud the Revenue and is illegal. It is important to distinguish between the two and not allow tax avoidance schemes to be cast in the same light as tax dodgers. 

However, what is clear from the Jimmy Carr debacle is that the government will be targeting offshore schemes going forwards and may well introduce retrospective taxes should they close the loopholes. In our view, offshore tax schemes tend to look good until the HMRC catches wind of them and then you could spend time worrying about whether or not you will be liable for a hefty tax bill. Whilst the offshore schemes represent a modern form of tax planning and tend to be legal, they come at a premium. A large proportion of the tax saved using offshore schemes will be used to pay the higher premiums to advisors and so the total saving is often negligible. 

Offshore schemes are not without risk as a number of offshore companies have been closed down in the past. Jimmy Carr could well have lost the £3m he placed in the offshore trust should the scheme have been unwound. Contractors do not often review their payslips to work out their marginal rate of tax and so the perceived benefit is not always as significant as you may be led to believe. It is often better to employ more simple schemes which tend to be cost effective and can certainly minimise your tax without straining the boundaries of legality. This ofcourse depends on your attitude to risk. 

For details of effective UK schemes to minimise your tax liability please contact us at Tax@belsizeaccountancy.co.uk.