In legal terms, a loophole is essentially a way to get around a clause in a contract or other form of rule or regulation. In effect, you are not breaking the law or the terms of the contract, but you are getting away with something that you shouldn’t do based on a particular detail that a legal professional may spot that another person wouldn’t.
A common example that people cite when it comes to legal loopholes is the difference between tax evasion and tax avoidance- while tax evasion is illegal, tax avoidance isn’t. To clarify, someone who is evading tax is not paying tax that they should do. Conversely, tax avoidance occurs when someone finds ways around paying tax.
Another example is in terms of technicalities. A recent incident occurred when a celebrity was arrested for speeding. This person admitted that they were speeding and didn’t contest the charge. However, the legal representative pointed out that because the notice to prosecute was served after the 14 day notice period, technically they could not prosecute. This defence was accepted and the defendant was let off based on that technicality.
The reason that loopholes exist at all is the fact that when drafting laws, legislation, contracts and so forth is that it is very difficult to completely cover any potential interpretation or any incident that this can cover. Therefore, anyone looking to get out of a contract or make a legal defence may look for these loopholes.
This is why when writing a contract it is recommended that you bring in a legal representative to oversee it. While this may not guarantee that it will be free from any form of loophole, it greatly reduces the risk of anyone circumventing the terms and conditions of a contract.
The danger of loopholes
Some people may look at this and think “I am going to research loopholes and find one to benefit me.” This is where a lot of people can get into trouble, and indeed some very high-profile people have been caught out with schemes that were meant to reduce their tax bills that ultimately weren’t as legal as they initially thought.
There is also the issue that the more people exploit them, the more attention this particular loophole gets. Governments are then pressured to get involved, with laws and legislation brought in so that this is then clamped down on. People then look for new ones, those also become oversubscribed and the cycle continues.
Do it the right way
There are perfectly legal ways to reduce tax bills and avoid potentially contentious issues. What may seem like a good idea at one point could have serious consequences later on. If you are not sure about a scheme that a friend or partner is interested in, then you should discuss it with a legal representative.
At Larcomes, our motto has always been “Big enough to specialise, small enough to care.” As a family run legal firm the principles behind that have always been important to us and we want to help our clients benefit in the right way. For more information on how we can represent you, please contact us today.