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New GAAR panel opnions

20th December, 2018

New GAAR panel opnions

The government introduced a new General Anti-Abuse Rule (GAAR) in FA 2013 and it applies with effect from 17 July 2013.

The primary objective of the GAAR is to deter taxpayers from entering into abusive arrangements and to counteract any tax advantage the abusive arrangements would otherwise achieve.

GAAR comes into force when the arrangements achieve a result not intended by Parliament when it introduced the law, and where those arrangements cannot be seen as reasonable. This rejects the previous approach taken by the courts of permitting taxpayers to reduce their tax liabilities by any lawful means, however contrived and artificial.

When a case is referred to the GAAR Advisory Panel by HMRC, the Chair will select 3 members to form a sub-panel to consider the written evidence and provide an opinion (or opinions, as it does not need to be unanimous) on whether the entering into and carrying out of the tax arrangements is a reasonable course of action in relation to the relevant tax provisions.

The General Anti-Abuse Rule (GAAR) Advisory Panel have published two opinions recently, dated 11 and 12 October 2018, relating to the use of contractor/employee loans received in place of salary.

The recent cases can be summarised as follows:

  • An employer (an agency employer, a company acting as a trustee of a trust) employed an individual and provided their services to an end user
  • The employee was paid minimum wage and received further consideration via discretionary loans
  • The employer then transferred the creditor rights to the loans to an employer-financed retirement benefit scheme (EFRBS), of which the individual was the beneficiary and therefore entitled to receive payments

The result was the individuals received a much higher percentage of gross income that they would have done under normal circumstances.

HMRC’s position in both cases was that the whole amount is liable to Income Tax and NIC as employment income and the liability owed to the EFRBS would not be met and was never intended to be met.

The taxpayer in the first case (no representations were made by the taxpayer in the second) contended that no income tax charges arose in relation to the arrangements as the loans were fully repayable and in particular, as there is no third party involved, the disguised remuneration legislation at Part 7A did not apply.

The panel acknowledged that it is not abnormal for an individual to provide his services through an agency employer, or for an employer to make use of an EFRBS.

However; they could see no reason, other than to seek a tax advantage, for the steps to be structured in such an artificial and complex way and therefore determined that the steps were designed to exploit a perceived shortcoming in Part 7A.

The Panel’s conclusion, in both cases, was:

1. Entering into the tax arrangements was not a reasonable course of action in relation to the relevant tax provisions


2. Carrying out the tax arrangements was not a reasonable course of action in relation to the relevant tax provisions

The GAAR Advisory Panel concentrated on the overall tax effects of the scheme, rather than the taxpayer’s reliance on a narrow technical reading of the legislation.

These decisions demonstrate how difficult it is for avoidance schemes to work and show that for tax planning to be effective, it must be consistent with the intention of the legislation and not be used to gain a tax advantage artificially.

We have seen a number of GAAR Panel opinions concerning EBTs, offshore trusts and EFRBS in 2018 and 2017.  It follows that opinions on similar schemes are likely to increase in number in the near future.

When it is determined that an arrangement is abusive, the GAAR allows for the tax advantage to be counteracted and if a taxpayer loses appeals against any subsequent adjustment the penalties are severe; 60% of the value of the counteracted tax.

The GAAR Panel has an advisory role and HMRC is not obliged to follow its opinions; however, with a 100% HMRC success rate thus far, it is difficult to conceive that they will not do so.

WTT is not surprised by the GAAR Panel’s opinions in these particular cases. The Panel considers each case on the basis of written summaries by HMRC and the taxpayer rather than conducting an open hearing. There does seem to be a clear bias in favour of HMRC, rather than a truly independent opinion and the decisions are made based on several assumptions as to intent with a lot of weight given to HMRC’s unsupported argument.

It is important to note that The Panel is not acting in a judiciary capacity. However; this seems to offer protection to HMRC rather than the taxpayer, as HMRC can disregard the opinion and continue to proceed under GAAR if they consider they have a good reason for doing so. Conversely the taxpayer is deterred from accessing justice due to the penalties involved in an unsuccessful challenge.

The House of Lords report on The Powers of HMRC: Treating Taxpayer’s Fairly, published on 4 December 2018, supports this:

‘The penalties associated with GAAR..are draconian and restrict access to justice..at their present level they are disproportionate and cannot be justified.’

WTT welcomes the recommendation that taxpayers should not be penalised if they are unsuccessful in challenging HMRC’s view of the law and that these penalties be abolished.

We believe the opinions of the Panel should be open to challenge without bar. It seems that HMRC is too reliant on referring cases, which serves to secure the required result in a more straightforward manner than following the traditional litigation route.  

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