Tony Wickenden: GAAR has spoiled the appetite for aggressive tax avoidance

I am writing this a few days ahead of the Budget so I have decided not to address anything too specific in a hopefully successful attempt to write something that will not look too silly at the time of reading.

So, what to choose? I know, what about a subject with guaranteed longevity, tax avoidance?

You really cannot have missed that substantial continued action against avoidance and evasion had already been announced (and in some cases actioned) before the Budget.

All of these provisions can be categorised as targeted anti-avoidance provisions and are evidence that the mere existence of the General Anti-Abuse Rule has in no way slowed the relentless development of targeted provisions.

The GAAR has been in full force since July 2013 and its existence is a significant contributor to the change to the “zeitgeist” surrounding aggressive avoidance.

As stated above, the GAAR, together with a number of measures have combined to severely limit the public’s appetite for aggressive marketed tax avoidance schemes. These measures include:

• Publicity (including naming and shaming) given to the future of aggressive schemes
• Initiatives to further limit marketed schemes
• The so-called accelerated payments provisions removing a significant element of the cash-flow advantages that can result from participating in schemes that fail in the Courts or Tribunals
• Emphasis on information gathering
• HMRC success in the Tribunals and Courts (more than 80 per cent success, apparently) and
• The seemingly relentless continued flow of targeted anti-avoidance legislation.

It is early days but the GAAR will be monitored through:

• The numbers of abusive schemes disclosed under the avoidance disclosure provisions (DOTAS)
• Intelligence via disclosure/other sources of attempts to circumvent the measure
• The number of potential GAAR cases identified and how many of those cases are authorised for counteraction under the GAAR, with a separate record of cases successfully litigated or settled by agreement using a GAAR challenge and
• Regular communication with taxpayers and practitioners affected by the measure.

Consideration will be given to evaluating how effective the GAAR has been at discouraging, as well as stopping, abusive avoidance schemes.

To date we have little evidence available to us but this will undoubtedly change over time.

The existence of the GAAR, and the other anti-avoidance measures referred to, have substantially operated to remove the public and financial-planner appetite for aggressive tax avoidance. 

Planning should, as a result, focus on tried and tested planning centred on financial planning strategies and products permitted and contemplated by the legislation and those accepted by HMRC.

As well as the specific anti-avoidance provisions and the GAAR, the Government has taken specific action against banks in relation to tax avoidance.

It has published a list of those banks that have unconditionally adopted the strengthened Code of Practice on Taxation for Banks.

The Finance Bill 2014 will provide for HMRC to publish an annual report, from 2015, which will name those banks that have and have not adopted the code, and may also name any bank that, in HMRC’s opinion, is not complying with the Code.

Broadly speaking, the code requires all signatory banks, building societies and other relevant entities to commit not to enter into aggressive, unacceptable tax avoidance strategies – regardless of whether they would appear to be within the letter of the law.

Although the code remains voluntary, the introduction of a naming and shaming approach inevitably means the profile and impact of the code has been raised.

In addition, although HMRC has accepted, as a result of the consultation process, the need for an independent reviewer, ultimately HMRC will still hold the final decision on whether a bank has been non-compliant and whether its name should therefore be published on the annual list.

By the time you read this there will inevitably have been even more anti-avoidance provisions proposed and you can be sure that I shall be looking at those of direct or indirect relevance to financial planners in the weeks to come.

Tony Wickenden is joint managing director at Technical Connection