Is avoiding paying the right amount if tax worse than claiming benefits illegally?

[sweetkitty]

Right there's all this talk and hysteria about benefits being falsely claimed etc and what's happening with this Universal Credit but personally I think there should be more done to clamp down on tax avoidance.

One of my friends husbands is self employed, he is earning a packet but has a clever accountant so ends up paying a lot less than he should in tax. He pays himself a minimum wage from his company then says the rest is loaned to him, then says his wife works for him and pays her a salary thus avoiding more tax. They were laughing as they won't have their CB cut even though they earn well over the 60K cut off.

So if two people are both earning 60K one is PAYE so is having to pay 40% on 42K plus but because the other is self employed can get away with paying a lot less tax.

There's 2 families I personally know like this so how many people are not paying the tax they should?

I would like to see how much benefit fraud costs the country versus tax evasion? Why is tax evasion ok but benefit fraud so deplorable?

Instead of all these cuts affecting the poor why isn't more done to ensure everyone pays the correct amount of tax?

Tax avoidance isn't illegal, benefit fraud is.

Your friend might be committing tax evasion ( claiming his wife works for him if she doesn't ) that is illegal

Why isn't tax avoidance illegal though? Surely you should by law be required to pay the correct amount of tax on your earnings?

Morally, I think yes as the amounts are higher. However as AdelaideAussie says tax avoidance is legal. Morally I also think tax avoidance is wrong but unfortunately as it benefits the wealthy disproportionally (ie Philip Green paying 1% tax legally) I doubt the political will is there to tighten up the law.

There is a very fine line, even in law I understand, between tax avoidance and tax evasion (which is illegal). You are entitled to deduct all relevant expenses incurred in your work before paying your tax, but if you were investgated and seen to be falsifying any of the information then you would be acting illegally.

Paying the spouse is okay if she does the work and pays tax on the income she earns from his business.

I understand that the loopholes regarding how people are paid through trusts (for example) in order to avoid paying tax are to be clamped down on.

I know benefit fraud is wrong but why is public perception do against benefit fraud when you can earn a million and pay hardly any tax?

It's almost bragging how little tax you can get away with?

The tax avoider is supporting themselves
The benefit fraudster is not

If someone is clever enough to organise their finances and the way their company is set up so that they can take advantage of legal tax-deductible allowances and so forth then they are not breaking the law. They are paying the correct amount of tax which is legally due. PAYE is a very blunt instrument which gives most of us little chance to reduce our tax-bill. Work for yourself, take on the risks that implies and one of the fringe benefits is that you get to organise your finances so that you can do it. It is not tax evasion. Tax evasion would be if your friend was doing cash-in-hand jobs and not declaring it.... that would be illegal.

Benefit fraud, like tax evasion, is theft. Very different.

Tax avoidance just means not paying tax you don't have to pay.

if his wife doesn't actually work for him, then that's fraud.

if his wife doe work for him, he doesn't have to pay her (as she is his wife - it's a good rule for low-earning businesses), but if he does pay her, then that amount isn't profit, it's expenditure.
there's nothing wrong with that.

i don't see how the sums can add up, though - if he pays her and her income is that, then the family still has an income of the same amount

But morally if two people earn the same amount they should pay the same amount of tax?

I know it's playing the system and the way it's set up. But in a country as financially in the red as this one is surely closing all these loopholes makes more sense than all these austerity measures?

It's some kind of loophole though to have your wife as your employee. Not quite sure how it works but it must have its benefits. But again how much work is work helping out with the accounts at the end of the year? Answering phonecalls?

It's just something I've been thinking about as I have two friends both SAHMs one is a carer for her disabled son so cannot work and is having her sons benefits cut? The other is gloating she will get to keep her CB even though her hubby earns loads as they have a clever accountant.

Doesn't seem fair?

Certain avenues have been closed off already where the law is being misused in a way it was never originally intended. But where do you draw the line? Even the humble ISA is legitimate a way to avoid tax. Why put your money in an account taxed at 20% at source if you can have the interest tax-free?... Is that morally wrong?

Does your businessman friend employ other people at all?

it's because if you are a tiny business, say a shop, and you had to pay your wife to work with you, but you're not taking enough in the shop to pay a member of staff, that's unfair, and would lead to your business probably having to close.
So you can have a member of staff but not have to pay them.
But if you make a profit, you have to pay tax on that, regardless.

Now, where it becomes good for you, tax-wise, is if you take enough money to pay your wife, and use her tax allowance. (ie, she is PAYE and she only pays tax on money over £6000 or whatever it is now).
your Self-employment status means that you pay tax on your profit above your own personal tax allowance.

If you didn't pay your wife, and you make a profit, then you pay tax on any income (profit) above your own tax allowance only.
So, you're getting free work out of your wife, but you're not getting the same tax benefits as you would if your wife worked for someone else, which isn't fair, because you need your wife's work to succeed.

You have to weigh up whether it is better for you to pay your wife and use both personal allowances, or not pay your wife (and have that extra bit of money in the business)

it sounds more like a ltd company set up not SE. It is likely he pays homself NMW and the balance in dividends (legal) you do not pay NI on dividends but they are not tax deductable so more corp tax is usually due. By paying his wife he is making max use of personal allowances, wouldnt anyone?

The thing is with "wife's wages" is that it is usually fixed at £1/week below the NI threshold. By doing that the business owner gets another wodge of income tax/NI free. However, according to the guidelines from HMRC, it should be work of 'economic value' ie justifiable.

It could be that the person has a 'clever' accountant, it could be that the person concerned lies through their teeth.

I can remember an architect who insisted that £80,000 of fee income related to the following year, therefore saving tax of £32,000. Other than accusing him of being a liar, there's not much you can do.

However, he also tried to put the Provenza tiles for his kitchen floor through the books. He didn't get away with it.

As an accountant, you can often end up hating small business clients for all their tax-dodging attempts. They already get enough concessions in that their expenses only have to be wholly and necessarily for the business, and not wholly, necessarily and exclusively if you are on PAYE, and that they can claim mileage from the minute they step out of their front door. The problem is that some of them are just plain greedy and take the piss.