The general anti-abuse rule, or GAAR, came into force on 17 July 2013 as the Finance Act 2013 received Royal Assent. The GAAR applies to abusive tax arrangements that do not pass what has become known as ‘the double reasonableness test’ having regard to all the circumstances, including the principles on which the legislation was based and whether the planning was intended to exploit any shortcomings.
There is a clear message for individuals considering schemes that seek to generate more in tax refunds than the original investment, and HMRC may well challenge these.
The message for businesses, however, is less clear as the complexity of business transactions and our existing law will produce an element of uncertainty. Tax is often only one factor when determining how to structure business affairs and this makes a reasonableness test difficult to apply.
Businesses and their advisers will need to assess whether planning is reasonable in the context of the legislation and their own particular commercial position. The GAAR guidance should help define what is, and what is not, acceptable.
HMRC and the independent GAAR advisory panel will need to continue to provide guidance on where the GAAR applies and where it does not. It is not envisaged that the GAAR will impact on everyday simple tax planning, but is directed at aggressive structures. However, care needs to be taken to review on a case by case basis and those advising on or deciding a case may need to refer not just to the legislation but to explanatory notes, ministerial statements and other evidence.
For independent tax advice or a second opinion please contact Leanne Hathaway at Edward Hands and Lewis.