Categorized | matt's blog

IR35 for breakfast and then GAAR for dinner

The majority of Contractors and their Accountants know all about IR35 legislation, it has become the elephant in the room and the wayward uncle you only talk about at family weddings. Even the word “IR35” sounds like a vaccine you take annually if you don’t want to catch tax-flu.

However, there is a new cousin on the horizon and he is called GAAR (pronounced Gaaaaargghh, like a pirate). This stands for General Anti-Avoidance Rule and is going to be a capture all for any system or technique that is used primarily to avoid paying tax to HM Revenue and Customs. Quite how this is going to work in practice is not very clear. For those of you that would like to know, here are the general principles:-

  1. It will not help in stopping tax avoidance by multi-national companies as they will inevitably locate their trading activities in the country that suits them best.
  2. An advisory panel will determine which arrangements fall within the scope of GAAR.
  3. The panel that decides this will most likely not have a person from HMRC included. (For now).
  4. The notes used to decide whether or not a scheme falls foul of GAAR principles, will not form part of the finance bill.

It is point 4 you need to have a look at if you are using some form of off-shore or general tax avoidance scheme. It will not be 100% clear until July 2013, when the new finance bill receives royal ascent, but we could be looking at a situation whereby a panel decides whether or not the scheme you use is illegal – without reference to the wording of the law?

Where it will go next, is going to be a calculated guess. It appears that GAAR will give a panel of experts the right to decide what constitutes tax avoidance. My suspicion, for what it’s worth, GAAR could be used to introduce new guidelines for tax avoidance that become the years fashion and make an already translucent set of rules, completely opaque.

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