A couple of months ago the BBC Money Programme investigated how the rich don't seem to pay any tax, whilst everyone else has to. It looked at various avoidance devices that have been used in the past such as moving offshore, payment by gold, wine and diamonds plus the use of employee benefit trusts. The message from those who had used the various schemes was that there was no tax avoidance because no tax was due! Various forms of tax were avoided from tax on trading profits to inheritance tax.

HMRC gave the message that they would come down heavily on anyone using illegal schemes. However, the programme left little doubt that the schemes were perfectly legal at the time they were used, although changing legislation has since made some of them out of date. Putting aside the moral issue of whether it's right to pay no tax, why can't everyone use these schemes or the new schemes that come onto the market to replace them?

In general, a certain amount of wealth is needed to make the professional fees involved worthwhile. Such schemes frequently involve barristers opinions, offshore trustees, etc. There is no set figure, but probably anyone with taxable wealth of below £1million is likely to be put off by cost constraints of the more sophisticated schemes. If you are in a position to make them worthwhile, such schemes are often not for the faint hearted and here's our top 10 tips for consideration before proceeding with a scheme.

1. Is it a formal tax avoidance scheme that is declared to HMRC with a reference number? Some schemes will require disclosure and others will not. If not, will HMRC be fully informed of the scheme so that you can sleep at night, not waiting for the knock on the door?
2. Is there definite legal opinion that it works in your own circumstances or is it just thought that it works?
3. Do the providers of the scheme guarantee the result and if so how good is their guarantee? Most do not usually provide a full guarantee, perhaps a partial fee refund if it doesn't work.
4. Is there professional indemnity insurance in place to cover any wrong advice you are given?
5. Have other people done the scheme and can you talk to them as a referral source?
6. What is the track record of the scheme providers with other schemes?
7. Can you get an independent legal opinion as to the result promised?
8. What happens if HMRC challenge the scheme? Costs of challenge can be significant.
9. What's the worst case position? Are penalties likely to be charged if you lose the argument with HMRC. It may well be that they are not if you have definite legal opinion as it would be harder for HMRC to show you had been fraudulent or negligent. If the worst position is you have a fees refund guarantee and no penalties, you're possibly in a no lose position.
10. What are the level of fees including all ancillary costs such as offshore trustee fees?

Fortunately, there is still plenty that those not able to take advantage of these schemes can do to help keep their tax bills under control, especially the self-employed. For example, the BBC programme did outline how you can refinance mortgage interest on your own home to get a tax deduction for it, something that's possible with a far smaller wealth position in some cases. For a 40% taxpayer with a £200,000 mortgage, this can mean being able to afford a mortgage of £333,333 for the same finance cost. Imagine how much better house you could then buy for the same monthly outlay on an interest only mortgage!

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