The general anti-abuse rule enacted in Finance Act 2013 is intended to deal with the most egregious tax avoidance, by counteracting tax advantages arising from “abusive” tax arrangements.
The first published opinion of the independent GAAR advisory panel, released on 3 August, was that the “abnormal and contrived” arrangements entered into by the taxpayers, who used gold bullion to reward key employees, failed the “reasonableness” test.
The GAAR applies only to arrangements entered into on or after 17 July 2013 and it is too early to tell whether it will be an effective deterrent. Since that date HMRC has made 18 additions to its spotlights page drawing attention to schemes – including gold bullion schemes – that it intends to challenge.
A 60% penalty applies to arrangements entered into on or after 15 September 2016 that are counteracted by the GAAR.
Tax arrangements (as defined) are “abusive” if they “cannot reasonably be regarded as a reasonable course of action” in relation to the relevant tax rules and the principles and tax policies behind them. HMRC guidance on the GAAR was updated in March.
Follower notices and accelerated payments
HMRC has won a number of high-profile victories in anti-avoidance cases in the courts. The GAAR provides an additional tool, but FA 2014 measures intended to “change the economics of avoidance” already seem to be having a considerable impact.
The “follower notices” regime aims to settle avoidance cases more quickly where HMRC believes that the particular issue has been decided in another taxpayer’s case. “Followers” who do not settle with HMRC after a court decision in its favour can now be given a follower notice, and may become liable to pay a penalty if they do not take corrective action. More than 9,000 follower notices were issued in the year to 31 March 2017.
The taxpayer is required to pay the tax in dispute if HMRC issues an accelerated payment notice (APN). HMRC may issue an APN if it has given a follower notice; or the arrangements are notifiable under DOTAS (see below); or the GAAR applies to the arrangements. Since 2014 HMRC has issued more than 75,000 notices worth more than £7 billion in total. Some taxpayers have sought to challenge APNs by means of judicial review.
Disclosure of tax avoidance schemes (DOTAS)
By 2014 the number of disclosures made to HMRC under the DOTAS regime introduced by FA 2004 had reduced to a trickle, but the regime’s scope has been widened. As indicated above, having an arrangement that is notifiable under DOTAS may now trigger an APN.
DOTAS provides HMRC with early notice of marketed schemes. Disclosure does not affect the tax position but it may result in legislation that makes the disclosed arrangements ineffective, sometimes retrospectively.
High-risk promoters and serial tax avoidance
High-risk promoters were targeted in FA 2014. HMRC may issue “conduct notices” to promoters of avoidance schemes that are defeated. A conduct notice requires compliance with certain conditions and disclosure requirements. Failure to comply may result in the issue of a monitoring notice and publication of the promoter’s details.
The serial tax avoidance regime in FA 2016 provides for warning notices and increasing sanctions to be imposed for repeated use of avoidance schemes. In some cases, use of schemes that HMRC subsequently defeats may result in substantial penalties and publication of the taxpayer’s details.
Other anti-avoidance rules
The broad anti-avoidance provisions outlined above complement the existing specific or “targeted” anti-avoidance rules. The summer finance bill now set to be published in September includes new penalties for “enablers” of defeated arrangements for avoiding tax or NICs.
Tax professionals also need to monitor implementation of the recommendations arising from the OECD’s base erosion and profit shifting project, as well as EU legislation including the anti-tax avoidance directive and, of course, the impact of Brexit.
Professional bodies’ guidance
Broad support for the GAAR and other anti-avoidance initiatives has been expressed by seven professional bodies including the Association of Accounting Technicians.
The joint guidance on professional conduct in relation to taxation, updated with effect from March, includes detailed guidance on the GAAR. It also states that members must not create, encourage or promote tax planning arrangements or structures that:
- set out to achieve results that are contrary to the clear intention of Parliament in enacting relevant legislation, and/or
- are highly artificial or highly contrived and seek to exploit shortcomings within the relevant legislation.
AAT recognises that members have a duty to act in their clients’ or employers best interest. This underpins the professional nature of the relationship between an accountant and their client, said AAT professional standards manager Farida Rahman-Wright. “However, being a professional extends much further than that, and members are also bound by the five fundamental principles as set out in AAT’s code of professional ethics,” she added.
“The GAAR and other anti-avoidance initiatives can present a difficult challenge for our members, who need to ensure they maintain a balance between acting in the client’s best interest and acting lawfully and with integrity,” Rahman-Wright said. “This means ensuring clients do not pay more tax than they need to, whilst ensuring they do not pay less than they are required to. The PCRT guidance is designed to help members maintain high standards and emphasises the key role members play in helping clients comply with their tax obligations and their broader responsibilities to society.”
HMRC seeks to “maximise revenues due and bear down on tax avoidance, tax evasion and other non-compliance”, according to the department plan updated in July. A forthcoming article will examine reforms intended to tackle evasion.
Andrew Goodall is a freelance tax writer and journalist.