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How to Avoid Paying More In Taxes Than You Need To Through Tax Planning

October 12, 2011 | Comments: 0 | Views: 142

Many people suspect that the rich pay little or no tax whatsoever. We are here to confirm that is true in most countries and the UK is no exception. In fact one of the reasons why the rich are rich is that they have managed to legally reduce their taxes over the years in order that their wealth can grow considerably faster than those open to paying maximum levels of tax. Tax Planning is definitely a vital aspect of wealth creation. However it is no longer a "closed shop" and the methods and structures employed by the rich are now open to many more people than you may have at first thought.

What is Tax Planning? Tax Planning is the legal structuring of your finances to use existing legislation to reduce tax. These favourable laws are often created to support or enable a particular business that the Government has decided needs assistance through tax breaks. An example in the UK is the Film Production Industry, which brings many millions of income to the UK. The Film Production Industry is often used for tax planning. This is legal Tax Avoidance, which is not to be confused with Tax Evasion. Tax Evasion is a criminal offence and is the illegal concealment of income or profits to avoid paying tax on those profits. As the reader will see there are easier and less risky methods of achieving the same results.

How big is the Tax Planning Industry? Her Majesty's Revenue and Customs estimates that annually approximately £10 Billion is sheltered from Taxation using legal methods of Taxation Planning. However, the Industry estimates that this figure is more like a massive £100 Billion per year! Naturally the majority is due to large corporate bodies but the rest, is due to people perhaps just like you!

Previously legal Tax Planning was the domain of the super rich and not available to anyone without an exceptionally large income and net worth. However, some Taxation Planning companies have lowered the qualification levels in terms of income and net worth, making this service available to perhaps one person in 100 unlike one in a thousand as previously. You can get the same methods and structures if you were to consider visiting the Big Five accountancy firms like Deloitte and Touche, KPMG etc but the qualification levels in terms of income and associated tax planning cost makes their services beyond even those who are comfortably wealthy.

How does Tax Planning work? Tax Planning companies have generally the greatest Accounting and Legal minds in the country working on their behalf to find ways of reducing or even totally eliminating all the different types of taxation. There are generally two main ways of achieving a reduced tax bill. Tax avoidance schemes generally create paper losses that can be set against actual income or gains and therefore reduce the taxable profit. The other primary method is a tax structure that ensures that the income is created in a tax-free environment and not liable to taxation. These structures often utilise offshore companies and trusts situated in foreign tax havens.

Once these Experts feel that they have a workable Tax Scheme, they present it to Queen's Counsels (QC's) to see if what they have proposed is firstly legal and secondly, works. Once two favourable QC's opinions have been obtained the scheme is then revealed to the Inland Revenue for vetting. Since 2004 all Tax avoidance schemes must be disclosed to the Inland Revenue within 5 days of offering the scheme to the public. This is known as DOTAS (Disclosure of Tax Avoidance Schemes). It is a criminal offence not to do so.

The Inland Revenue will then question the legality and functionality of an avoidance scheme or method and once satisfied will give the scheme an ID number, which in turn is then placed on the client's income tax return. This enables the HMRC to gauge how much taxation revenue is being lost due to a particular scheme. If the taxation losses are sufficiently large enough the HMRC will then take steps to change the legislation that enables the particular scheme. Typically the time when the taxation legislation is changed is during the annual Budget, which is announced in March/April each year and also at the Pre-Budget Report, which is released in late October each year. The scheme is then offered to potential clients through Introducers who are usually accountants, solicitors and IFA's (Independent Financial Advisors).

At the moment of writing this article most UK Tax Planning companies are able to offer clients ways of eliminating every form of UK taxation. As a sample clients can expect to reduce or in some circumstances even eliminate Income Taxation. In other cases clients are able to claim back all the income tax paid for the last three tax years, avoid/eliminate Capital Gains Taxation, avoid/eliminate Inheritance Taxation, reduce corporation taxation, eliminate Stamp Duty and Land Tax, create asset holding structures to hold investments in a tax-free environment for Inheritance tax and capital gains tax purposes. The available possibilities are numerous.

Jason Russell is a consultant with The Tax Experts, a UK based firm that specialises in UK Tax Avoidance Schemes and Tax Planning. The firm demonstrates to clients on a daily basis that tax in the UK is totally optional and is legal to avoid. The firm offers income tax planning, capital gains tax advice, corporate tax planning, inheritance tax planning and avoiding stamp duty and land taxes on house purchases and commercial properties.

Plain English Tax Guides relating to UK taxation can also be purchased from The Tax Experts Book Shop.

Some of the methods used are the Employee Benefit Trust, film partnership schemes, Employer Funded Retirement Benefit Schemes, offshore company structures and numerous other legal mechanisms. To learn more about The Tax Experts please visit http://www.thetaxexperts.co.uk.

Source: EzineArticles
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