Experts slam avoidance rule

THE GOVERMENT's direction on tax avoidance has provoked a harsh reaction as tax advisers turned on the proposal for a general anti avoidance rule (GAAR) saying it would hurt small business.

The proposals came from exchaequer secretary David Gauke (pictured) in a statement to Parliament.

Andrew Jupp, head of tax at Haysmacintyre, said: "It is unnecessary and unwelcome, and will introduce yet more uncertainty into the tax system. Unless it is coupled with a vast range of pre-transaction approvals it will stifle businesses ability to operate and make sensible commercial decisions.

"Whilst the largest British companies might be able to cope with a GAAR, I cannot see how the smaller businesses, which are the lifeblood of the UK economy, will manage. These businesses constantly tell us that they want less red tape, not more."

Gauke announced that a further study would look into whether a GAAR could "meet the objectives of deterring and countering tax avoidance in a fair way" while still "retaining a tax regime that is attractive to business".

Neal Todd, tax partner at law firm Berwin Leighton Paisner, said: "When the government published its corporate tax reform document last week it repeated its promise to provide business with a more competitive, simpler, and more stable tax system. Unfortunately, the announcements of new anti-avoidance measures show that it still has a long way to go to deliver on that promise.

He said Gauke's statement was "harsh and will not help restore business confidence in the UK tax system."

James Bullock of McGrigors said that despite a GAAR many tax schemes would still need testing by the courts because transactions would need to take place before HM Revenue & Customs could give them a clean bill of health.

"The problem is that there will inevitably be a situation - probably many situations - where commercial pressures mean that transactions have to be completed before specific HMRC clearance can be obtained confirming that they do not fall foul of a GAAR."

"You will then have precisely the situation that applies at the moment - HMRC challenging the tax treatment of transactions after the event, on the basis that the GAAR applies. Taxpayers will oppose these challenges and the whole thing will end up being interpreted by the Courts - just as happens at the moment".

A GAAR was considered by the Labour government in the 90s but dismissed because have been too expensive to administer. Other countries do have them in place, including Australia and Canada.

A GAAR was included in the Liberal Democrat manifesto and many commentators believe it has been put forward now as political means of persuading Lib Dems in the coalition government to standy by the proposals on university tuition fees.

In 1999 the Institute for Fiscal Studies concluded that a GAAR would be counter productive insisting it would be intrusive on ordinary commercial and private transactions.

A GAAR would attempt to provide a single anti avoidance rule and provide a definition of acceptable tax planning. Many of the ideas from the Treasury were trailed over the weekend.

The weekend also saw protests at branches of Topshop by the presure UKuncut claiming the company and its owner, the wife of retailer Philip Green, avoided taxes because she lives in Monaco. UKuncut also protested at branches of Vodafone.