Back in November Graham Aaronson QC published his report on whether the UK needed a General Anti-Avoidance Rule (GAAR). His conclusion was that a “broad spectrum anti-avoidance rule” would not be right as it might prevent “responsible” tax planning and he proposed the introduction of a “moderate” rule that would not stop this responsible tax planning but would tackle “abusive” arrangements. So far so good, especially for me, who over the past 30 plus years have, I hope, always gone in for responsible tax planning.
However, this starts alarm bells ringing with me. The whole issue of a GAAR is to be consulted on over the summer, with a view to legislation being introduced next April. My first concern is whether the views expressed in the report or the views of HMRC, who are thought to favour a more far reaching rule, will prevail and be legislated. My second and larger concern is, if we do end up with a rule similar to the one proposed in the report, who will decide what is responsible tax planning and what is abuse?
The biggest problem with our tax system is uncertainty and it can only add to the uncertainty, if you are unsure whether any advice given will be attacked as going too far and being considered irresponsible. OK very simple solutions are likely to be unaffected but much is done that, although fairly basic tax planning, HMRC do not like. Will we be faced with a situation that anything disliked by HMRC becomes irresponsible? The government have already done a very good job of blurring the distinction between tax avoidance and tax evasion and this might be a chance to bring tax planning in, to further “muddy the waters”.
In all my years, I have come across very few clients who do not want to pay any tax, most just want to pay a fair amount, and it is only when the tax bill is considered unfair that they consider tax avoidance solutions or even some of the schemes that are extremely artificial and must therefore come under the heading of abuse. If we face being attacked over tax planning, as well as solutions, it will be somewhat challenging.
Where does that leave us now? I do not want this to be an advert but the only certainty, that tax planning will not be attacked, under a GAAR, is to do it now. Tax solutions have their place, as do some of the more artificial schemes, as long as the pros and cons are fully discussed. The latter will certainly be ruled against and some of the former may also fall foul of the new legislation, so it may well be a case of buy now or miss the chance.
My best guess is that anything done before the pre- budget statement, later this year, will not be affected by any changes made. However, this guess does not extend to anything to do with Stamp Duty Land Tax because the Chancellor in his budget signposted the fact that he would retrospectively act against this avoidance.
