HMRC publishes guidance rules for the new general anti-abuse rule (GAAR)

HMRC publishes guidance rules for the new general anti-abuse rule (GAAR)


The guidance came in effect from 15 April 2013.

GAAR is one part of the Government's approach to managing the risk of tax avoidance. The GAAR legislation defines what are tax arrangements that are abusive. The GAAR applies to the following taxes:

  • Income Tax
  • Corporation Tax
  • Capital Gains Tax
  • Inheritance Tax
  • Petroleum Revenue Tax
  • Stamp Duty Land Tax

The guidance states that the GAAR applies to abusive tax scheme, which are as 'any arrangement which has the obtaining of a tax advantage as its main purpose or one of its main purposes’.
The new guidance includes definitions of ‘tax advantage’ and ‘tax arrangements’. However, HMRC also says the legislation includes safeguards to ensure that ‘any reasonable choice of a course of action is kept outside the target area of the GAAR’. For example, deciding to trade as a limited company rather than a sole trader. Where the new rules do apply are cases where HMRC judges taxpayers are ‘entering into contrived arrangements to obtain a relief but incurring no equivalent economic risk.’ In such cases, HMRC says it will apply a ‘double reasonableness’ test which requires HMRC to show that the arrangements ‘cannot reasonably be regarded as a reasonable course of action’.

However, HMRC also warns there may be some arrangements which appear to be so blatantly abusive that HMRC may invoke the GAAR without first completing the exercise of determining the arrangements under the rest of the tax rules. This means it will not be possible for a taxpayer to object to the use of the GAAR simply because all other means available to HMRC to tackle what they consider an abusive arrangement have not been utilised.

Unlike the general position in tax cases, it is HMRC that is required to show that the GAAR applies, and not for the taxpayer to prove that it does not apply. Specifically, HMRC needs to show that there is tax arrangement; that this tax arrangement is abusive; and that the counteraction of HMRC is reasonable.

The procedure for applying the GAAR requires HMRC to put their proposal before an advisory panel of independent experts who will assess whether the arrangement is a reasonable course of action. HMRC officials will not be able to commence counteraction under the GAAR without such prior consent. In general as per the guidance GAAR aims at extreme avoidance, not tax planning.

More information about the GAAR guidance is available on the official HMRC website:

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