Taxing times for General Anti-Abuse Rule

The General Anti-Abuse Rule offers a valuable ethical, legal and professional framework on tax evasion and avoidance. But will it help accountants satisfy the all-important court of public opinion? The jury’s out, says AAT Head of Conduct and Compliance Tania Hayes

HMRC has just closed its consultation on the proposed and much-publicised General Anti-Abuse Rule (GAAR). The implementation of the GAAR as a viable mechanism for countering what could be perceived as unethical (or even immoral) tax avoidance has divided opinion.

Ask the BBC, Barclays or Jimmy Carr, all of whom have faced the wrath of politicians and the media for their use of avoidance schemes that have been seen as abusive.

Under the GAAR, loopholes in specific tax legislation can be addressed on the basis that the mechanism used to exploit the loophole to gain a tax advantage was not what the primary legislation intended. HMRC says the GAAR would lead to a simpler tax regime for the UK by reducing the need for remedial legislation to address loopholes.

But we should not rule out the possibility that it will actually increase complexity. This is because it requires the authorities to consider the spirit of any tax-avoidance scheme, and where it sits on the scale from legal avoidance to illegal evasion.

This is a key issue. It is going to affect accountants, whose professional judgement will become even more important when determining the spirit of suggested avoidance schemes and their compliance with the GAAR.

AAT’s Code of Professional Ethics requires accountants who provide tax services to put forward the best position for their client or employer. However, the service must be carried out with professional competence, must not impair integrity or objectivity, and must comply with the law. Clearly, the ethical accountant uses only legal means to minimise their client’s tax liabilities. But they also have an obligation to ensure their integrity – in the eyes of both the law and the public – and objectivity are not impaired.

Here, the GAAR presents an interesting challenge. There is always a risk that the accountant’s interpretation of appropriate tax planning may be interpreted as ‘creative, verging on abusive’ by HMRC or the public. If this occurs there is a danger that the accountant’s client becomes exposed and the accountant has their professional integrity called into question despite their best attempts to apply ethical, professional judgement while creating the best tax position for their client.

A wise AAT member once summed up ethics in practice to me by saying: ‘As an accountant I make sure that my clients do not pay a penny more tax than they need to, nor a penny less tax than they need to.’

This mantra is consistent with the outcomes the GAAR intends to achieve; the question is whether the means proposed will manage to satisfy HMRC and the court of public opinion.

More information on ethics and conduct for accountants is available on the AAT website.

Tania Hayes is AAT's Head of Professional Standards & Strategy.