UK plans to crack down on tax avoidance
Monday November 21 2011 | 07:29 AM

Plans for a powerful new weapon against “highly abusive, contrived and artificial” tax schemes will be published in a Treasury-commissioned report today.

The proposals come as the government faces public pressure to curb tax avoidance.

The report has tried to overcome business objections to a general anti-avoidance rule (GAAR). The Treasury will consider the recommendations before reporting back at the time of the next Budget.

Business groups are likely to welcome the report, while reserving judgment on whether the proposed GAAR would succeed in retaining a tax regime that is attractive to companies while deterring avoidance.

Will Morris, head of the tax committee of the CBI employers’ group said: “The CBI remains concerned about the uncertainty that a UK GAAR may introduce but does agree that preventing the most egregious tax abuses is to the benefit of both government and taxpayers.”

Richard Baron of the Institute of Directors said: “This is a very measured and sensible report on a possible GAAR. The government should certainly use it as the basis for a formal consultation. But we must test the idea thoroughly before it gets anywhere near being put into law.”

The TUC welcomed the proposals and urged the government to adopt them. But Richard Murphy, a campaigner who represented the TUC in consultations on the GAAR, said he was concerned that “the hurdle has been set too high with the presumption of innocence on behalf of taxpayer.”

The proposal, which was hammered out by a group of tax experts during 11 months of consultation, gives impetus to an idea that was consulted on in 1999 and featured in the last Liberal Democrat manifesto, which said it could raise £2.1bn a year. Previous efforts to introduce a GAAR have foundered on the grounds that it would expose business to too much uncertainty.

Graham Aaronson, a barrister who chaired the review, said the latest proposal – aimed at stamping out egregious schemes while preserving the “large centre ground of responsible tax planning” – would catch many fewer cases than the simpler GAAR proposed in 1999.

Under his proposal, the burden of proof that an arrangement was not “reasonable tax planning” would be placed on Revenue & Customs. An advisory panel would be asked to adjudicate in cases where the taxpayer thought the GAAR was being incorrectly used.

One of the biggest objections to a GAAR has been the fear that it would give the Revenue too much discretion. Ashley Greenbank, chairman of the Law Society’s tax law committee said: “The report contains some innovative proposals to address this issue which are worthy of further consideration. “

The GAAR would be aimed at income tax, capital gains tax, corporation tax, petroleum revenue tax and national insurance contributions and could be later extended to stamp duty land tax.

James Bullock, partner at McGrigors, a law firm, said: “In an ideal world, a GAAR would not be necessary. However, if we have to have one, the safeguards proposed mean we can give this proposal a cautious welcome.”