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  • General Anti Abuse Rule (“GAAR”)

    22 May 2018

    Andy Wood

    An introduction to the General Anti Abuse Rule (“GAAR”)

    I would like to make two connections between GAAR and the TV series The Walking Dead.

    Firstly is, I often find myself thinking that some of the ‘walkers’ are moaning “GAAR!!?!” as they wobble around the environs of Atlanta (perhaps when they wrap this up we will find that the mysterious infection was accidentally created by a NT Advisers tax scheme?)

    Secondly, conceptually, one might think of the UK tax system as being one of the big creaky old houses in which Rick and his cohorts take refuge. The flaking plaster and crumbly bricks being the substantive legislation. GAAR, however, is the handily placed floorboards that can nailed to the windows to keep out the undead.

    So, I’ve managed to see off the introduction. What is the GAAR?

    When does it apply?

    First of all, and the clue is in the title, this is an anti-abuse rule. It isn’t an anti-avoidance rule.

    Tax arrangements must be abusive which would could read as being at the really foul end of aggressive tax planning and avoidance.

    It certainly does not cover tax planning.

    GAAR has applied since 17 July 2013 which was the date Finance Act 2013 received Royal Assent. If relevant, it has only applied to National Insurance Contributions (NICs) from 13 March 2014.

    Its broad aim is to counteract tax advantages received from abusive tax arrangements.

    What are abusive tax arrangements?

    First of all, one needs ‘tax arrangements’.

    The bar is set deliberately low to qualify. I don’t mean qualify in a good way. Essentially, if you are considering whether something you have done is a tax arrangement then it is almost certain that it is!

    However, and you can put down the stiff drink, that is not the end. GAAR onlyapplies where those ‘tax arrangements’ are also “abusive tax arrangements”

    As such, the key as to whether GAAR’s applies to a given piece of planning is whether something is ‘abusive’ or not. Or, to put it in a much sillier fashion, is the distant figure approaching a desperate human looking for shelter, or a member of the walking dead looking for a quick nibble on your arm?

    The GAAR defines ‘abusive’ by reference to a test known as the double reasonableness test. Now, I will state something silly again but unfortunately this is something which is now part of the UK tax code. The double reasonableness test is so named because GAAR dictates that tax arrangements are abusive ‘if, having regard to all the circumstances, entering into the arrangements or carrying them out cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax provisions.’ Yes, enough to drive anyone in to the arms of the walking dead.

    Believe it or not, this is described as an objective test. In any event, it requires us to consider:

    • whether the tax arrangements are, having regard to all the relevant circumstances, a reasonable course of action, and
    • in turn, if that view (the view that they are or are not reasonable) is itself reasonable

    To elucidate, this means that that the tax arrangements are not protected from the ravages of GAAR just because someone holds the view that the arrangements are a reasonable course of action.

    This is because that person’s view might be unreasonable.

    However, if that view is reasonable then the double reasonableness test does not trigger GAAR.


    What to consider?

    The legislation gives us some things to consider…quite literally. It tells us we needto consider a list of things when determining whether tax arrangements are abusive:

    • whether the substantive results of the arrangements are consistent with the principles (whether express or implied) and policy objectives of the relevant tax provisions;
    • whether the means of achieving the substantive results involves one or more contrived or abnormal steps—the terms ‘contrived’ and ‘abnormal’ are not defined and therefore take their ordinary meaning and would cover the inclusion of a step or feature that would not otherwise have been included, and
    • whether the arrangements are intended to exploit any shortcomings in the relevant tax provisions—this:

    The GAAR legislation also provides us with three potential indicators that an arrangement might be abusive and also an indicator that suggests otherwise. These are, of course, non-exhaustive.

    Perhaps what is more helpful is the GAAR Guidance produced by HMRC. In Part D of this document HMRC has set out its view on what arrangements are within (and outside of) GAAR.

    Which taxes does General Anti Abuse Rule (“GAAR”) apply to?

    GAAR applies to the following taxes:

    Where the GAAR is invoked then the ‘benefits’ of the planning are counteracted and an adjustment needs to be made to the relevant tax return.

    The quantum of any adjustment is whatever is just and reasonable in the circumstances.

    HMRC’s ability to invoke General Anti Abuse Rule (“GAAR”)

    In principle, the taxpayer has a responsibility to self-assess under the GAAR. However, this is a bit loopy as, presumably, if one thought the planning was in GAAR then one wouldn’t have entered in to the planning?

    As such, the legislation also enables HMRC to apply the GAAR. However, HMRC are required to follow certain procedures if they want to make such an adjustment, and the required steps differ depending on the type of notice HMRC issues to the taxpayer.

    The different types of notices are:

    • a notice of proposed counteraction:
    • a provisional counteraction notice: this type of notice was introduced by FA2016. A HMRC officer will state in the notice the adjustment he reasonably believes may be required to counteract a tax advantage that would (in the absence of the GAAR) arise to the person from tax arrangements; if a taxpayer does not agree with the notified adjustments that are made by HMRC, it is important for that taxpayer to make an appeal against them
    • a pooling notice: these were also introduced by FA 2016. The consequence of the notice is that it places a taxpayer’s scheme in a pool alongside other similar arrangements. HMRC can give a final counteraction notice to the ‘pooled’ taxpayer without having to refer them to the GAAR panel if they HMRC have a ruling on one of the other arrangements.
    • a notice of binding: these may be issued where HMRC has given a final counteraction notice to another taxpayer with a set of equivalenttax arrangements. It enables HMRC to give a final counteraction notice without having to refer them to the GAAR panel

    The General Anti Abuse Rule (“GAAR”) panel

    I have referred to the GAAR panel a few times above. Who is this enigmatic band of men and women?

    For starters, the GAAR advisory is a HMRC established panel. Their duties are as follows:

    • they must review and approve the GAAR guidance which is drafted by HMRC; and
    • when required, provide opinions regarding the reasonableness or otherwise of the relevant tax arrangements

    They are not paid for these duties.

    General Anti Abuse Rule (“GAAR”) guidance

    Most guidance (for example, the DOTAS guidance) issued by HMRC is just that. Guidance. It does not have any statutory footing although one would be foolish to ignore it.

    The status of the GAAR guidance is somewhat different.

    The legislation states that a court or tribunal must specifically take into account the GAAR guidance (assuming it has received approval from the GAAR advisory panel). It therefore has a statutory footing.

    The GAAR guidance has a section which provides many examples of what HMRC believes falls foul of GAAR. The fact that an example is listed, and assuming it has been approved by the panel, then it is likely to mean that the relevant arrangement is within its remit.

    It should be noted that it is the guidance that applies at the time. For example, an example absent from earlier versions but present in a future one is only relevant if one enters in to it after the later version of the guidance comes in to effect. That said, an arrangement which is not listed is NOT automatically safe.

    General Anti Abuse Rule (“GAAR”) Advisory Panel: Opinions

    So what happens when an issue is referred to the GAAR advisory panel?

    They spring in to action by forming a sub-panel. This sub-panel is comprised of three members who should hold the appropriate expertise to deal with the matter in hand.

    The sub-panel will consider each matter on the basis of written summaries from:

    • HMRC’s; and
    • the taxpayer

    There are no hearings or oral evidence.

    The panel can provide one or more reasoned opinions, depending on whether the members of the sub-panel come to a unanimous view or not.

    It is also in the sub-panel’s gift to come to the conclusion that they do not have sufficient information to reach a view on whether the arrangements were reasonable or not.

    So what is the test?

    The task of the sub-panel is to consider is whether the entering into and carrying out of the tax arrangements is, or is not, a reasonable course of action.

    This is known as the single reasonableness test. Note this is not the double reasonableness test described above. Under the single reasonableness test there is no requirement for the sub-panel members’ view to be reasonable. It is merely their view of the reasonableness of the tax arrangements in question.

    They are not considering whether or not the GAAR applies since that would require the double reasonableness test to be applied


    Originally, the General Anti Abuse Rule (“GAAR”) did not have any specific penalty regime attached to it. It was described as toothless by campaigners against tax avoidance. Some might say that a toothless member of the walking dead was nothing to fear.

    However, from 15 September 2016, taxpayers who entered into arrangements that were counteracted by the GAAR are liable to a penalty of 60% of the value of the counteracted tax.

    Big pointy teeth.

    However, the taxpayer is not liable to a GAAR penalty if the taxpayer takes action to fully counteract the abusive tax advantage prior to the matter being referred to the GAAR panel or, in the case of a notice of binding, within 30 days of the date of the notice of binding.


    Despite widespread consensus that artificial and abusive schemes were unacceptable, there was a concern that GAAR might be prone to mission creep. Indeed, in his initial report setting out his view of any provisions, Graham Aaronson QC was at pains to point out that reasonable tax planning should remain unaffected by it.

    After a slow (in fact stationary) start, the first GAAR cases have started to trickle through. There is no surprise that the first handful of cases taken have been highly artificial schemes such as the gold bullion remuneration scheme.  As such, there has been no mission creep.

    Whether this will remain the case going forward only time will tell.

    However, for now, unless you are participating in highly artificial and contrived schemes then one, unlike Rick and his colleagues, should not be getting bitten.

    If you have any issues where General Anti Abuse Rule (“GAAR”) are involved in a scheme and want to consider your options or have any tax queries at all then please get in touch.