Fifty Schemes of Grey: not S & M, more SME...from a tax avoidance perspective.

Where exactly do SME advisers draw the line between what is considered acceptable in tax planning (white) and that which is deemed aggressive or abusive tax avoidance (black)?

The following summary puts forward some suggestions as to what sort of planning is acceptable and falls into that area between black and white - Shades of Grey. The list is not conclusive as this topic is open for debate and discussion and the debate will surely continue for as long as we all have to pay taxes.

Where exactly is the middle ground for SME owners and their advisers? Note: a masochistic tendency is helpful if you want to get the bottom of the small print of some of the darker schemes available.

White Shades of Grey Black

Legitimate use of reliefs

Relying on the operation of a relief to work although not in the way parliament may have envisaged

Channeling money backwards and forwards through complex networks for no commercial reason but to minimise tax

    Voting dividends to shareholders
Taking a low salary to minimise NICs

K2 type shemes: avoiding tax and NICs and IHT. Cease employment in the UK, an offshore vehicle employs you and receives your income which lends it back to you.

Splitting income producing assets with a spouse

Creating shares of different classes for family members

Locating "the spouse" offshore and then splitting your UK company dividends

Splitting income but retaining control of your assets

    Employee shares schemes
    Paying dividends on employee shares
Awarding restricted shares to employees and then paying dividends Disguising bonus payments by awarding employees shares in offshore companies via a series of transactions
Making loans to employees Making large loans to directors (more of a Companies Act issue)

EBT/EFURBS loan back schemes avoiding PAYE and NICs, with CT and IHT relief

Reducing SDLT by just and reasonable reapportionment of a contract Reducing SDLT by maximising fixtures claims

Avoiding SDLT by staged completion or buying a house via a company

Claiming back tax on legitimate charitable donations Charities Gift Aiding shop sales receipts

Gift Aid with no real gift or Gift Aiding using worthless shares

Claiming reliefs against double taxation when the alternative would be taxpayers paying tax twice on the same income Structuring your overseas business affairs with the intention of maximising the benefits of double taxation relief

Devising a scheme using different offshore vehicles which has no other commercial benefit other than maxing out on double taxation relief

Providing employees with tax free benefits such as lunch and phones

Salary sacrifice schemes

Contrived employment liabilities and losses

Investment in SEIS and EIS

Claiming loss reliefs when trading or disposing of assets


Enhanced planning to enhance losses by watching timings, accounting periods and capital expenditure

Schemes which create artificial losses - for sideways or capital loss relief

Not paying tax on your pension contributions Planning with EFURBs

Pensions schemes artificial surplus

Setting up a trust Setting up a benefits trust for employees but using it to lend money to you and your family Facilitating the creation of a trust to be settlor and then living off "loans".
VAT flat rate scheme Business splitting or supply splitting VAT artificial leasing