General Anti Avoidance Rules (GAAR)

The General Anti Avoidance Ruslses (GAAR) that are billed to be the "end of tax planning" are to be implemented in March 2013. What are they and what impact will they have on Tax Planning? This artcile aims to give you a perspective that you may not find in the newspapers.

The GAAR is designed to close the gap between "aggressive tax planning" and what might be termed "acceptable" day to day tax planning. The response is what one would expect from the Government in light of recent news regarding legal tax avoidance originating with the Jimmy Carr affair, but the reality is not quite so simple. The current Government is one that traditionally supports business people with the aim of improving the economy and thereby improving the lives of everyone else. However, they must also be seen to be supporting the average person who to some degree buys into the belief that wealthy people/employers have made their money "off the backs of the poor". For this reason some statements are made and actions are taken to placate the masses. Those that are potentially affected by the GAAR already know that the tax system in the UK is already unfair because the more you earn, proportionally the more you pay (40% tax bracket, 50% tax bracket, NI etc) The GAAR would seem to be the result of this placation.

In line with this was some recent moves to block particular methods of tax planning - even though this happens every March/April with the Budget announcement and every Nov/Dec with the Pre-Budget announcement - the GAAR is a high profile action to be seen to be tackling the "problem" of legal tax avoidance. The GAAR is now being rushed through in record time to placate these same people and …………gain re-election. Now lets look at what the GAAR means and what is its' intention.

A GAAR form of legislation is presently used in Norway, Canada, Australia and even New Zealand. Does this legislation work? In New Zealand at least, they are looking at revoking their GAAR legislation because it is believed to hamper normal business and thereby harming the economy. As already mentioned the the aim is ideally to eliminate all forms of aggressive tax avoidance. The Government appointed one of the country's leading authorities on UK taxation to look at the issue and to report back. His findings have been that there are not just "50 shades of Grey", there are more like Five Thousand shades of grey, making this an almost impossible task in his own words. The Government has also only allowed a relatively short time to study the situation, make recommendations and the actually pass the legislation through parliament so it is believed that the inital goal of March 2013 will probably not be met.

What does this mean? Well, the task is described as "almost impossible" by the leading UK Tax expert, the time is too short to give justice to the legislation so it is likely that the GAAR will come out later in 2013 and not affect too much planning. However, most leading tax planning companies are now designing their methods and tax schemes in such a way that they will undoubtably not be affected by any likely GAAR legislation. This is likely as the Government does not wish to damage the economy and at the same time it wishes to be re-elected.

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