Andy Gadd, head of research at Lighthouse Group, spelt out the situation to the latest regulations. He said: “The issue of tax has been a contentious one for well over a year now. This is thanks mostly to the host of high profile companies that have found themselves appearing before Margaret Hodge and her Public Accounts Committee. I have always been an advocate for taxpayers having the right to pay as little tax as is possible as long as this is via legal and legitimate means and within the rules allowed. This new GAAR legislation, however, rejects the proposition that taxpayers have unlimited freedom to use their ingenuity to reduce their tax bills by any lawful means.”
He added, “With reference to tax the new GAAR is very important because rather than considering tax avoidance or evasion the GAAR legislation defines what are, for its purposes, tax arrangements that are “abusive.”
It is crucial to highlight the need to keep in mind the premise underlying the GAAR, which rejects the proposition that taxpayers have unlimited freedom to use their ingenuity to reduce their tax bills by any lawful means.
The GAAR now compares the substantive results of arrangements with the principles on which the relevant tax provisions are based, and with the policy objectives of those provisions. The GAAR means that there is a new way of legislating that will have a profound and far-reaching effect as HMRC have confirmed that they are adopting the FCA principle of an outcomes-based approach to abusive tax planning.”
The primary function of the GAAR, which will have effect in relation to any arrangements, which are entered into on or after the date on which Finance Bill 2013 was passed into law, is to deter taxpayers from entering into abusive arrangements, and to deter would-be promoters from promoting such arrangements.
Andy concluded: “As far as the operation of the GAAR is concerned, Parliament has imposed an overriding statutory limit on the extent to which taxpayers can go in trying to reduce their tax bill. The challenge for IFAs is that the publicity surrounding tax avoidance means, for some clients, there has been blurring of what might potentially be done in terms of tax planning and consequently the possibility of clients not taking up the opportunity to use perfectly legitimate structures, permitted by legislation including the GAAR, to avoid taxes either now or in the future.”