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General Anti-Abuse Rule (GAAR) – What You Should Know

  • Posted 10th September 2015

General Anti-Abuse Rule (GAAR) – What You Should Know

Being a tax payer, do you have any idea what GAAR is? If not, it is important that you know about it because it directly affects you. In the UK, the General Anti-Abuse Rule (GAAR) is a system introduced by the government to prevent abuse of the tax code with the help of tax schemes or avoidance arrangements. It is designed to counteract tax arrangements which are abusive and prevent taxpayers from entering and promoters from promoting such arrangements. From 13 July 2013, the GAAR has been applied to income tax, capital gains tax, inheritance tax, corporation tax, petroleum revenue tax, stamp duty land tax and annual tax on enveloped dwellings in the UK. Here are some features of the GAAR.

  • While applying the GAAR, the courts can take any relevant material into account.
  • To determine whether the GAAR should apply or not, HM Revenue & Customs (HMRC) should consult a newly-appointed Advisory Panel consisting of experienced tax professionals. Such professionals will then provide opinions on whether a course of action was reasonable or not. However, HMRC is not bound by the views of the Advisory Panel.
  • A taxpayer’s liabilities will be adjusted reasonably if GAAR is appealed successfully.
  • According to the UK's tax rules, the taxpayers are required to self-assess their UK tax liabilities, but the GAAR just simply forms part of those rules and should be taken into account to determine tax payer’s tax liability. Likewise, if the tax affairs are not taken properly taken care of and tax liability is assessed incorrectly, then it may lead to penalties.
If the taxable profits are significantly less than the economic profit or loss arising under the arrangement, the tax result is inconsistent with the policy objectives, the tax arrangements are intended to exploit a loophole in the legislation, then such situations indicate abuse. Alternatively, if the arrangement agrees with the established practice that HMRC hasn’t challenged, then such arrangement is not regarded as abusive. This means such arrangement is a reasonable course of action in accordance to the relevant tax provisions. If you have any queries regarding this issue, feel free to contact Phoenix Tax Accountants today.

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