SMEs need to be aware of new General Anti-Avoidance Rule for tax bills

22nd April 2013

Business owners considering mitigating their tax bills can expect to see the courts take a harsh line following a new General Anti-Avoidance Rule (GAAR) from HM Revenue and Customs (HMRC).
 
The law, which has been written in simple terms for use in courts and tax tribunals, outlines details of what arbiters should take on board when hearing a case.
 
Within the GAAR report, it states that tax ‘is not a game’ and that this encourages taxpayers to invent ‘ingenious’ avoidance schemes to bend the rules and save money.
 
GAAR now stipulates a statutory limit for taxpayers to adhere to when paying tax, who must now take a ‘reasonable course of action’ for their bills.
 
Before GAAR can be applied to an individual case, HMRC requires consent from an independent advisory panel. In instances where GAAR can be applied to a self-assessment case, further penalties may also be applied should the final decision indicate that an avoidance scheme was ‘obvious’ and has abused the system.
 
The four sections of advice which have already been approved by the interim GAAR Advisory Panel are due to be used by the courts from July.
 
GAAR now applies to the following:
 

  • Income tax

  • Inheritance tax

  • Capital gains tax

  • Stamp duty land tax,

  • Petrol duty

  • Annual tax on homes owned by companies

 
Heather Self, of law firm, Pinsent Masons, believes the new GAAR still has some way to go before it willwork most efficiently, particularly when defining whether a particular scheme has fallen foul of the new ruling.
 
“The new guidance is more practical and provides clarity for taxpayers on what is and isn’t allowed, but there is also a specific warning to taxpayers to ‘keep off the grass’,” she said.
 
“GAAR is clear that when the government says it will stop a particular type of scheme than those who find ways around the rules could be in trouble.”
 
For further information on how the new rules affect you visit HMRC’s GAAR section.

 

Image: 401(K) 2013 (Flickr)

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