Over the last 18 months or so, tax avoidance has become an attention grabber, with the media, politicians and general public becoming increasingly outraged at various practices – from big corporates avoiding tax by transferring profits to other tax regimes, to freelancers working for the BBC and not being on their payroll.  Is anyone safe from this moral crusade?  It is often very difficult to cut through the noise and understand the reality of each situation.  The latest round of coverage now sees the Director of Public Prosecutions adding his weight to the ‘forces of good’ and committing to increasing prosecutions in cases of tax evasion.  It’s very easy to get swept up by this and assume all and any tax planning is bad.  Let’s be clear it isn’t.

This coverage has served to blur the line between what’s acceptable and what’s not by bringing in a moral dimension to tax planning.  I’m of the view that it’s the Government’s job to define via legislation what is lawful and what is not and then organisations and individuals to have an obligation to do what is lawful and not do what is unlawful.  Tax evasion is unlawful but organising your business and personal affairs in a way that minimises your tax liabilities is lawful – I would go as far as to say this should be a personal responsibility.  If organisations or individuals wish to individually apply a moral dimension to how they behave within the law, they have the right to do this.  But the law is the ultimate reference point.

So back to the original question – how worried should middle class professionals be currently?

Driven by the current climate, it is clear that certain groups are being targeted in terms of tax evasion and aggressive tax avoidance and, unfortunately, the professional classes seem to be right in the firing line.  Not only have we had statements by senior politicians and specific media coverage to highlight risk areas – freelancers at the BBC, offshore bank accounts, new policies on working for public sector clients – but we can see some specific enforcement actions being taken by HMRC.  We had HMRC’s ‘Tax Health Plan’ back in 2010 which targeted medical professionals, they launched a ‘task force’ targeting London lawyers back in September 2012 and restaurateurs were also specifically targeted by HMRC last year.  Earlier this month HMRC announced a further amnesty for hospital consultants, GP’s, locums, dentists aimed at persuading these professionals to voluntarily declare previously undeclared income.  It’s also likely that some professionals will be caught up in the HMRC enforcement activities relating to the tax agreement with the Swiss Government, the so called Christine Lagarde list and the HSBC whistle-blower information on Jersey bank account holders.

The more general enforcement activity is increasing too – the new approach to employment status enforcement – more centralised teams, improved tax payer guidance, more training of HMRC staff, the business entity tests etc.  This new approach, led by the IR35 Forum, is generating increases in enquiries being raised by HMRC across self-employed activities generally.

Overall, it is a pretty hairy environment currently for any professionals who have income other than standard employment income.  They are being very clearly targeted and the political and public mood is very much behind this enforcement activity – whether that relates to evasion or avoidance.

Many commentators also feel that it’s the ‘easy pickings’ that HMRC and the Crown Prosecution Service will go after.  The tax yields and prosecution increases targeted are significant and the funds available to support this ‘improvement’ are felt by many to fall short of what is required.  This combination could well see the ‘little guys’ being targeted – the self-employed professionals, small business owners – where any unpaid tax is more likely to be due to lack of understanding or lack of good housekeeping rather than some complex aggressive tax avoidance scheme or deliberate tax evasion.  That said, the overall impact and cost on these individuals will be no less destructive.

So there is a lot for self-employed professionals to be worried by.

Can these ‘risks’ be reduced?

Ultimately, the position is simple – if you have not done anything unlawful, whatever moral crusade Government or the media might be on, there is nothing to worry about.  This hasn’t changed.  But the risk of being challenged by HMRC to check whether this is the case has increased significantly – both generally and particularly for self-employed professionals and even more specifically for certain sectors – medical professionals, barristers, dentists.

Tax evasion is unlawful and I will always support the robust enforcement of the law in this regard.  Too many bad laws have been enacted to cover the lack of genuine and effective enforcement – we need HMRC to resourced properly to allow them to stop the  bad guys.  But sensible tax planning remains just that, sensible.  Understanding and managing your self-employed status carefully, claiming appropriate tax reliefs available, sensibly avoiding business and personal tax liability where you can – these are things everyone should do with appropriate advice/support.  It is also key that you stay on top of your business/professional and personal finances ‘as you go’ – don’t leave things until the end of the year and then be surprised by a tax bill.  In the current ‘high risk’ environment, it is not the time to leave things to chance.