Alongside the slew of spending cuts this week, the government also announced it intends to do more to combat tax avoidance. One proposal under consideration is a General Anti-Avoidance Rule (GAAR).
The idea behind the rule is to forestall efforts to subvert the intention (if not the letter) of UK tax law. As things stand, many tax lawyers and accountants are paid big money to do precisely this -- and consequently they've come up with complex, sometimes ingenious, schemes to secure tax advantages for their clients.
A general anti-avoidance rule would not make these schemes illegal as such -- they'd simply be ignored -- while the assets or the income derived from the schemes would become taxable.
As Ronnie Ludwig of Suffery Champness points out:
"This sounds like a very widely worded rule which will give HM Revenue & Customs (HMRC) the power to stop tax avoidance ploys, at their entire discretion.
"Taxpayers and advisers will have to wait to see the detail, but it will probably give HMRC the power to stop apparently legal tax dodges without having to get any specific laws changed first."
The Chartered Institute of Taxation has responded cautiously to the proposed rule:
"We are happy to examine the idea of a GAAR, although the underlying concerns that existed when this was looked at by the Treasury in 1999 remain. To provide certainty, a clearance mechanism would be needed; to provide fairness, some of the existing clutter of anti-avoidance rules would have to be abolished.
"Much has changed since a GAAR was last looked at: we have the successful disclosure regime; we have 'TAARs' (Targeted Anti-Avoidance Rules) and we have the Courts taking a much stronger line on avoidance. Given all of these, a key question will be whether a GAAR is necessary or adds anything."
Meanwhile, tax advisors Deloitte are downright dismissive of the rule:
"Where implemented in other countries, e.g., Canada, such rules have resulted in enormous uncertainty as to whether or not transactions are caught by such rules. We suspect that upon review the new government will likely conclude, in line with prior governments, that such a rule would not be advisable."
And Michael Wistow, head of tax at corporate law firm Berwin Leighton Paisner, is quoted in Accountancy Age as saying:
"We very much hope that the government will conclude that a GAAR is unnecessary. Indeed, it would be counterproductive if the government carries through with its welcome commitment to simplify the corporate tax system."
To read more abut reactions to the proposed rule, visit Tax Research UK. Alternatively, you may want to consult a solicitor who specialises in tax law to find out how GAAR would impact you. You can find a quality-assured tax solicitor in your area for free via a referral service like Contact Law, which can also help you to better understand your situation and whether you are even ready to hire a solicitor.
- Taxes (FindLaw UK)
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- Cuts Are An "Ideological Choice", Not An Economic Necessity (The Solicitor)