Withers' Budget Response: New General Anti-Abuse Rule May Be Too Broad

GAAR would be a ’very good thing’ if narrowly applied, but Withers are worried that HMRC will be over-keen to use their new ’tool’

While containing few completely new or un-trailed provisions, this year’s Budget nevertheless represents a ‘fundamental shift in tax policy’ said Christopher Groves, partner at Withers, at the law firm’s breakfast Budget briefing this morning.

The difference is that the government, rather than simply trying to close tax loopholes as they arise, is now seeking to ‘change society’s attitude towards paying tax’ and one way in which they are doing is through the General Anti-Abuse Rule, known by its ferocious sounding acronym, GAAR.

You could easily argue that society’s attitude towards tax doesn’t need changing in the way Groves envisages — the average UK taxpayer doesn’t employ a tax planning expert, and already finds it quite unacceptable that the wealthy are able to reduce their tax bills with the help of legal whizzes.

GAAR has indeed been quite widely welcomed — the Coalition’s ‘we’re all in this together’ mantra resonates, even if few people believe it’s really true.

Are aggressive ways of protecting your money going to be outlawed?

Withers, however, greeted GAAR cautiously. Withers’ partner Sophie Dworetzsky is concerned at how ‘incredibly broadly drafted’ the new legislation is. While she says GAAR would be a ‘very good thing’ if narrowly applied, to include only the most egregious cases, she’s worried that HMRC will be over-keen to use their new ‘tool’ and will apply it too broadly, punishing reasonable tax planning measures.

‘One of my biggest concerns is how it’s going to work,’ she added, noting GAAR’s ‘quite frankly quite strange’ Advisory Panel composed of a combination of tax experts and tax campaigners — who she feels are unlikely to agree on anything.

Withers acknowledges that GAAR has the potential to be an effective tool for clamping down on tax evasion and aggressive tax avoidance — they will be watching carefully to see how it’s implemented this summer. Spear’s will be too.

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