Tax planning, ethics and the impact of taxes on decision making
Avoidance and evasion
Evasion is illegal (fraud or non-disclosure); avoidance is legal but targets the letter of the law. The general anti-abuse rule counteracts abusive arrangements, using a double-reasonableness test, with a 60% penalty where it applies. DOTAS requires disclosure of specified arrangements, giving HMRC early sight of marketed schemes.
Ethics and professional conduct
Structure answers: identify the threat (self-interest, self-review, advocacy, familiarity, intimidation), evaluate its significance using the conceptual framework (integrity, objectivity, professional competence, confidentiality, professional behaviour), then respond and document. Confidentiality is qualified by statute - money laundering reporting and legally required disclosure. A client's instruction never overrides a professional obligation, and the firm must consider whether to continue acting.
Planning and decision making
Effective planning uses reliefs as intended: timing of disposals and income, choice of business vehicle, profit extraction (salary, dividends, pension contributions), group structuring and family wealth planning (IHT reliefs, trusts, deeds of variation). Evaluate on after-tax cash flows and risk, not headline rates.
Traps
Ethics questions ask what the adviser should do, not merely what is legal; candidates also forget GAAR notification and the requirement to correct errors.
Rule of thumb
An employer pension contribution of £10,000 costs the company £7,500 of post-tax profit at 25% corporation tax and puts £10,000 into the fund; an equivalent £10,000 bonus costs £11,380 with employer NIC and delivers about £5,800 after tax and NIC, subject to the annual allowance.