Tax planning can be done ethically despite the recent furore over the conduct of celebrities such as Jimmy Carr and Take That, according to an expert.
Ann Bibby, tax partner in the Birmingham office of international accountancy firm Mazars, admitted that the debate on the morals of the practice had cast some doubt over the sector.
“Given the recent adverse publicity, it is no wonder that some businesses are reluctant to enter into complex arrangements that purport to deliver reward to employees virtually free of tax,” she noted.
“However, simple tax planning can help employers ethically incentivise their staff in a tax-efficient way.”
Ms Bibby highlighted the reduction in the top rate of income tax taking effect from April 6 next year.
“Deferring at least some of a bonus or commission payment due to be paid to a 50 per cent taxpayer until after that date can generate legitimate savings, without prejudicing the employer’s own tax position.
“The simple act of deferring a bonus payment from 2012/13 until after April 5 2013, should save the recipient five per cent in tax.
“Deferred remuneration arrangements can also be tailored to suit the longer term incentive requirements of employers too. Operating over a two- to five- year timeframe, deferred reward structures are becoming increasingly popular.
“Awards are usually warehoused in an employee trust throughout the deferral period which provides commercial protection to scheme participants. Tax efficiencies can be significant because it potentially provides an investment return on the gross amount of the deferred payment, with the expectation that the amount ultimately obtained by the employee will benefit from reduced income tax rates,” she said.
Ms Bibby said there were many technicalities for advisors to navigate, including rules concerning the tax point of a cash payment and anti-avoidance legislation rules on “disguised remuneration”. Tax specialists also had to consider arrangements that included a formal waiver of an employee’s entitlement to remuneration in favour of deferring.
But she stressed: “With due care, an effective deferral will usually be possible and could generate attractive tax savings for the recipient
“This is all both legal and ethical. There is nothing wrong with seeking to minimise your tax by taking advantage of legitimate opportunities.
“And, I would suggest, it encourages people to work harder and create wealth, something which is beneficial to both the individual and the country.”