Redundancies could spark rise in tax avoidance, experts warn

Tax haven: Jersey

The increase in redundancy payouts in the recession is fuelling a surge in the use of personal tax avoidance schemes, according to experts, while HM Revenue and Customs this week acknowledged the fall out from the economic crisis could change attitudes towards paying tax.

Advisers believe employee benefit trusts (EBT) are particularly susceptible to abusive avoidance schemes as workers losing their jobs attempt to minimise tax on their redundancies.

Paula Tallon, tax partner at BDO Stoy Hayward, said: ‘It’s one area where there are a lot of tax avoidance schemes going on at the moment because of the high number of redundancies.’

Although it is unclear how much is at stake in these avoidance schemes, the taxman recently shut down a personal tax avoidance scheme worth £200m.

According to Nigel Davies, principal at ITEPAdvisors, a tax advisory firm, the recession has led to an increase in enquiries from EBT beneficiaries questioning the tax rules. ‘I wouldn’t be surprised if there is a rise in those that at least consider entering into an avoidance scheme.’

He added that development and distribution of personal tax avoidance schemes is opportunistic, with users taking advantage of legislative loopholes.

Mike Warburton, senior tax partner at Grant Thornton, said while he is yet to see any evidence of a correlation between the rise in redundancies and personal tax avoidance schemes, he does concede careful planning around ‘judicious timing’ of redundancies.

‘Just because I haven’t seen it doesn’t mean to say that it’s not happening. People who are looking at redundancies are looking at efficient ways of helping people made redundant,’ he said.

A spokesman for HMRC said the economic downturn could change the pattern of tax avoidance but it is a complex area. ‘It is difficult to say with any certainty what, if any, that change will be,’ he said.

The CBI estimates unemployment will top three million by the next general election due in 2010.

Redundancy payments up to £30,000 during employment with any one company are normally paid out tax-free.