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What advisers are saying: The GAAR is changing attitudes to tax planning

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A short while ago a customer walked into the Starbucks store where my brother Chris is spending time between acting jobs.

When asked her name (so the Barista can write said name on the paper cup inducing a warm feeling of recognition, personalisation and the beginnings of a deeper brand bond – ahem, so the theory goes) she said ‘Taxpayer’. Which is a rather British protest but it does highlight the mood the government is successfully orchestrating through the GAAR. Incidentally, that customer also ordered a blueberry muffin, which is a detail that I like.

As far as tax planning is concerned the implications of the GAAR have barely begun to register. The GAAR does not mean that all other legislation stops – targeted tax changes will continue apace – but what we are witnessing is a new way of legislating that will have a profound and far-reaching affect.

The reason is the huge tax gap, mooted at anywhere between £35bn and £120bn, only around 30 per cent of which is from evasion/crime.  

HMRC has explicitly stated (referenced in the GAAR guidance notes) that it is adopting the FCA principle of an outcomes-based approach for clients. And it has been very aggressive in its naming and shaming approach, switching from the personal to the corporate.

But the effect this is having is marked. Advisers have experienced an increasing blurring of the lines (in the mind of clients) between evasion, avoidance and planning causing clients to back out of (or at least seriously question) perfectly legitimate structures that are permitted by legislation and are in no way contrived avoidance.

The Government, of course, is comfortable with this in so much as it helps close the tax gap.

Using the courts is time consuming and expensive. HMRC would rather not ban products outright but rather create the mood music that says “thematically we’re troubled by them”. This, in effect, undoes everything the British system is based on.

It has recognised that the system of law is no-longer achieving what it set out to achieve. Through a clear strategy to get the public behind it by naming and shaming (because getting the courts behind you is too clunky) the Government now, in effect, has a statutory provision that it can always look at intention and outcome.

And it now has a public mandate to do that. It says “we will continue to try and write the law better but we’re giving ourselves a safety net.” That is what the GAAR is and does and that is why it is a game changer. 

Phil Wickenden is managing director of So Here’s The Plan phil@soherestheplan.com

Extracts from IFA interviews…

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