GAAR stands for General Anti Abuse Rule. Substitute Avoidance for Abuse and you can see what the Government are really talking about and the picture they are trying to paint. Why does the mention of GAAR follow on naturally from profit extraction? Probably because so many tax mitigation solutions are designed for profit extractions although, of course, there are also perfectly legal and perfectly valid solutions for mitigating Capital Gains Tax and Inheritance Tax as well. The talk is of introducing a GAAR to come into effect next year. Why it is necessary and what will be its effect?
Perhaps the need for a GAAR is an indication that HMRC feels it is struggling in the battle against well thought out and properly documented planning. If you can’t find a nut-cracker use a sledgehammer. Sure, HMRC do win as many cases as they lose but remember they’re in a position to pick and choose which cases to fight. They’ll obviously pick the weakest. When they try to stop legal and legitimate attempts to reduce tax by calling it “evasion” or “illegal avoidance” or “abusive” it muddies the waters.
As far as we are concerned, like most firms of accountants we don’t “do” avoidance strategies but where we know of sound commercial and legitimate solutions to problems we’d be failing if we didn’t refer you to the best of those solutions leaving the issue of “risk” up to you. However, what does concern us is that the GAAR may be so widely drawn that it could affect simple planning that you wouldn’t think of as tax avoidance
and certainly not as aggressive or abusive planning. We await developments. In the meantime it occurs to us that there has never been a better time to contact us and arrange an A to Z review of your tax affairs, whether personal or corporate. You may find various options open to you are closed by next year.