As promised











M32 0FP


Introduction – background to this firm and our comments


We are a firm of chartered accountants operating as a limited company and employing 3 directors and 7 staff. These comments have been drafted by Mark Simpson, Director of Tax Saving, BA ACA CTA, who had the privilege of hearing a presentation by Professor John Tiley, a member of the Aaronson Committee, at the Chartered Institute of Taxation Residential Conference on 15 April 2012 on the subject of the General Anti-Abuse Rule. The subject is of great professional interest to us, and we would like to help in the process of ensuring that it operates as intended, and as effectively as possible.

Responses to Consultation Questions


  1. Do you agree that the GAAR should be limited to the taxes and duties set out in clause 1(3) of the Draft GAAR initially? Are there any particular issues relating to how the GAAR would function in relation to the taxes (including NICs) that are proposed to be included?


Ideally I would prefer to see the GAAR applying to the whole range of UK taxes; otherwise it seems likely that abusive avoidance efforts will concentrate on those taxes that are excluded, which I submit is undesirable. However, I have no particular knowledge of the concept of abuse of law, other than a general knowledge that the doctrine relates in this context presumably to the fundamental freedoms enshrined in the EU Treaty. On the face of it I find it surprising that this includes the freedom to abusively avoid tax, but I bow to those with greater knowledge of these complex legal matters.

I gather there are complexities to applying the GAAR to national insurance with immediate effect, but am content that it is intended to do so in due course.

I do not identify any immediate issues with regard to specific taxes (other than the VAT & NI issues already noted).

2.     Do you agree that the GAAR should be capable of counteracting UK tax advantages obtained under double tax agreements?

Yes, provided that is consistent with the terms of the specific agreement.

3.      Do you agree that (1) the proposed “main purpose” rule serves as a useful filter, when coupled with the concept that arrangements must also be “abusive” and (2) a specific exclusion for arrangements without tax intent is not required?

I am always rather wary of subjective, as opposed to objective, tests in law, but I accept that there is no realistic alternative in the case of a GAAR. On that basis I believe that the main purposes test is a useful filter in this respect, particularly given the over-riding requirement that arrangements are “abusive”, particularly given that the definition of abusive appears to me to be as clear as possible in a judgmental area, subject to he specific point made at 4 below.

I do agree that a specific exclusion for arrangements without tax intent would be otiose.

4.      Do you agree that the proposed “double reasonableness” test operates as intended to counteract only artificial and abusive schemes (such as those described in Annex B)?

I am comfortable with the ‘reasonably regarded’ element of the test, but I am nit sure there is sufficient guidance as to what might be seen as a ‘reasonable course of action’. I assume this is intended to refer to the way in which a transaction would reasonably be structured without reference to tax factors, and to thus identify transactions whose structure can only be explained by reference to their tax saving potential.  I am not sure the nexus between arrangements and unreasonable structure is sufficiently clear at present.

However., my concerns here do not quite address the specific question, as they centre on whether the GAAR could be applied where it should be as opposed to being applied where it should not. On the basis of the illustrative transactions caught by the GAAR and clear Ministerial statements of the intended scope of the GAAR I have no great fears of the latter taking place.

5.      Do you agree that the counteraction provision in the draft GAAR is appropriate?

I agree entirely that appropriate counteraction very much depends upon the nature of the abusive transactions undertaken, and that it is not therefore appropriate to unduly tie HMRC’s hands with reference to how they might choose to unravel a transaction found to breach the GAAR.

6.      The Government is continuing to develop its analysis regarding the appeals processes in relation to counteraction and consequential adjustments under the GAAR, and welcomes views which may inform detailed proposals to be published later in the year

If I understand correctly, it is proposed that the Tax Tribunal will have the right to substitute its own method of counteraction for that chosen by HMRC if it believes that to be the appropriate course of action. This seems somewhat of a departure from current Tax Tribunal practice, but I have no objection to the idea in principle. I suspect that in the majority of cases the method of counteraction will be self-evident, but I do accept that in more complex cases the restoration of the ‘status quo’ may be rather more difficult to achieve by counteraction.

7.      The Government would welcome views on these commencement options, how transitional arrangements should be dealt with, and whether there should be different rules for different taxes where appropriate.

In my view anyone who has undertaken an abusive tax arrangement since Budget Day 2012 has done so in the full knowledge that legislation is in the pipeline to counteract such transactions. I therefore have no hesitation in stating that my preferred option would be for the GAAR to apply to transactions entered into on or after Budget Day 2012, particularly because I suspect that the impending GAAR may have led to a rush of taxpayers seeking to take their last chance to put into effect abusive tax arrangements. I would have no sympathy for such taxpayers if they were to be caught by the GAAR.

In my view this would mean that no transitional arrangements were in fact required, which would simplify life considerably, and nor would different arrangements be required for different taxes.

8.      The Government welcomes views on Clause 5(1) of the Draft GAAR

I am satisfied that this Clause strikes the correct balance between HMRC and taxpayer in terms of the burden of proof.

9.      Do you agree that it is appropriate for particular weight to be given in the legislation to the GAAR guidance and the opinion(s) of the Advisory Panel on the arrangements?

The Advisory Panel is an innovative concept, and I can see its advantages compared to a formal clearance procedure, which would presumably involve HMRC in considerable cost in terms of manpower and other resources. However, I am always cautious about the creation of further tiers of bureaucracy in the tax system. As the question takes the existence of the Panel as a given, I will do so also, and on that basis I agree that Advisory Panel decisions should carry significant weight over and above that of other factors, as otherwise there would presumably be no point to its existence.

Turning to the GAAR guidance, I would like to see the drafting itself handled by a mixture of HMRC staff and tax advisors (through the auspices of the CIOT, ICAEW etc). However I accept that the need for speed may necessitate the first draft being produced by HMRC, but I do think this guidance should only be draft until the joint approach I suggest can be undertaken.

10.  The Government welcomes comments on whether particular issues arise in relation to Self Assessment (where the relevant taxes operate within a Self Assessment regime) or within the existing administrative rules for those taxes that do not operate within a Self Assessment regime.

I think it is important that the GAAR should operate within existing tax frameworks so far as possible. I would not overplay the importance of safeguards for taxpayers, on the basis that if the GAAR is operating properly it would be highly unlikely for a taxpayer to stumble unwittingly into a transaction close to or over the GAAR borderline on abuse. On the basis that taxpayers who enter into abusive tax arrangements or arrangements that have elements that would attract HMRC’s attention as potentially abusive will in general be only too well aware of what they are doing and the risks they are running, I do not consider that they need additional administrative protection.

11.  The Government invites comments on the general proposal that the GAAR should as far as possible operate within existing administration rules for the taxes involved; and on what adaptations may be necessary to existing administrative rules to ensure that the GAAR operates with as little as possible additional administration cost and burden for taxpayers, advisers and HMRC. Is there a case for having a new type of assessment given the cross-regime range of the GAAR?

I would prefer to see the GAAR accommodated so far as possible within the scope of the existing tax rules and administration. I do not see the need for a new type of assessment; given that counteraction must be just and reasonable, I think it is appropriate for HMRC to address its mind to precisely what adjustments are appropriate in respect of the range of taxes relevant to the abusive arrangements, and if that process is complex so be it. As a tax adviser I would feel much more comfortable with an adjustment covering 4 or 5 taxes than a global adjustment referring to no specific tax.

12.  The Government invites comments on whether time limits should be set for each of the stages two, three and four and if so what those time limits should be.


Stage 2 – 30 days (it should not come as a complete surprise to a taxpayer to receive a Stage 1 letter, so they should be prepared to respond on a timely basis)

Stage 3 – 45 days, to allow for HMRC manpower shortages and over-stretch.

Stage 4 – depends on the workload of the Advisory Panel – it would be good to have the whole process complete in (say) 120 days, which would mean 45 days for this stage, but that may be unrealistic in practice.

13.  The Government welcomes comments on the proposals relating to the Advisory Panel

I agree with making the Advisory Panel a non-judicial body. I am uneasy about the equivalent of a ‘not proven’ or neutral decision by the Panel where insufficient information is available, but I do see the difficulty in giving the Panel information gathering powers. It does appear to be in taxpayers’ interests and those of HMRC to obtain a Panel opinion, so perhaps in practice co-operation with regard to providing information will occur in any case.

Information about Panel opinions should be made as widely available as possible in the light of taxpayer confidentiality issues.

The mix of HMRC and other personnel is a sensible one.

14.  The Government would welcome views on the proposals for producing and updating the guidance

As stated above, I would like the medium to long term production of guidance to be a joint exercise between tax professional bodies and HMRC, but I accept that draft guidance may need to be drafted by HMRC alone for Advisory Panel approval in view of time constraints – I would not like to see GAAR introduction delayed beyond April 2013.

15. HMRC would welcome comments or evidence that can improve the TIA Assessment of impacts, costs and yield of the GAAR proposals

I see this as the most difficult question, the reason being that the GAAR will presumably have one of two impacts. Ideally, it will have a deterrent effect in discouraging companies from undertaking and marketing abusive tax avoidance schemes, in which case it would have a significant indirect yield at relatively minimal cost.

On the other hand, it is perhaps more likely that those with the resources to implement or ‘buy’ schemes, and large enough tax liabilities to make sheltering these appear worthwhile, will test the boundaries of the GAAR in its early stages with such schemes, and it is at this stage that the GAAR will need to prove to be robust and effectively targeted. The short-term costs on this basis will be higher, and the direct yield hopefully greater.



I believe you will find, on the basis of my discussions with peers, that the GAAR is widely welcomed by tax professionals, and that a return to “the centre ground of tax planning” is considered by them to be long overdue. The financial crisis has cemented a growing feeling among the rank and file of tax advisors that it is morally unacceptable for large organisations to adopt abusive means of significantly reducing or eliminating their tax bills, and thus the advent of an effective and well-targeted GAAR would be a most positive step forward.

Mark Simpson

Director of Tax Saving

Simpson Burgess Nash

Chartered Accountants

15 June 2012