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General anti-abuse rule enters into force

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The general anti-abuse rule, or GAAR, entered into force on 17 July 2013 as Finance Bill 2013 received Royal Assent. The GAAR applies to abusive tax arrangements that do not pass what has become known as ‘the double reasonableness test’ having regard to all the circumstances, including the principles on which the legislation was based and whether the planning was intended to exploit any shortcomings. Those advising on or deciding a case may need to refer not just to the legislation but to explanatory notes, ministerial statements and other evidence.

Stephen Coleclough, president of the CIOT, commented: ‘The message for individuals tempted, for example, by schemes that promise more in tax refunds than the original investment, is clear: don’t do it. The message for businesses, however, is more nuanced: abusive planning won’t work, but the complexity of business transactions and our existing law will produce an element of uncertainty. Businesses and their advisers will need to assess whether planning is reasonable in the context of the legislation and their commercial position. The GAAR guidance should help define what is, and what is not, acceptable. We hope that HMRC and the independent GAAR advisory panel will continue to work on helping taxpayers and advisers understand where the GAAR applies and where it does not.

‘Tax agents will need to start considering whether the GAAR applies when they complete a client’s self-assessment return. The GAAR guidance makes it clear that much commonplace planning will be unaffected, which is helpful for many taxpayers and advisers alike. However, there is likely to be a long period of uncertainty whilst the GAAR matures.’