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This publication is available at https://www.gov.uk/government/publications/technical-and-procedural-amendments-to-the-general-anti-abuse-rule/technical-and-procedural-amendments-to-the-general-anti-abuse-rule
Who is likely to be affected
Anyone who is involved in using abusive tax arrangements.
General description of the measure
This measure tackles the small minority of taxpayers who deliberately avoid providing information in order to frustrate HMRC’s ability to pursue enquiries into abusive tax arrangements under the GAAR.
It also introduces some minor procedural and technical amendments to the legislation, to remove ambiguity and to ensure that where HMRC decides not to pursue the GAAR, enquiries can still be pursued using technical non-GAAR arguments.
The government wishes to provide a balance, between ensuring that appropriate safeguards are in place for those taxpayers that engage with HMRC, whilst allowing it to tackle those that abuse the rules.
The current process for pursuing abusive tax arrangements under the GAAR, gives HMRC a fixed 12 month window to gather information and consider whether to continue a GAAR challenge.
However, some taxpayers and advisers have deliberately refused to co-operate with HMRC during that window and have withheld information, to prevent HMRC from making a decision as to whether enquiries should be pursued under the GAAR or not.
A new GAAR notification (protective GAAR notice) will provide for HMRC to carry on its investigations beyond 12 months and mirrors the way normal tax enquiry notices work.
Taxpayers will have the right to appeal a GAAR adjustment 12 months after the protective GAAR notice is issued (reflecting the existing 12 month window during which appeals cannot be progressed whilst HMRC carries out its enquiries).
These changes will remove much of the incentive for the minority of taxpayers who would otherwise choose not to cooperate with requests for information, whilst ensuring appropriate safeguards such as appeal rights and oversight of the independent GAAR advisory panel are in place for those who are complying with the rules.
Background to the measure
At the Budget on 29 October 2018, the government announced that legislation will be introduced in Finance Bill 2019-20 to make minor procedural and technical changes to the GAAR.
This measure was not consulted on due to the procedural and technical nature of the changes. Instead, HMRC has published a technical briefing note alongside the draft legislation to explain the changes.
The amendments to section 209(6)(a) FA2013 suspending the effect of adjustments made under section 209 until the GAAR procedural requirements have been satisfied will have effect in relation to adjustments made on or after the date of Royal Assent.
The new protective GAAR notice provisions will have effect in relation to notices issued on or after Royal Assent. A protective GAAR notice cannot be given if a Provisional Counteraction Notice (PCN) has already been issued.
The repeal of the PCN framework under sections 209A to 209F will not affect the operation of these provisions in relation to PCNs issued before the date of Royal Assent to Finance Bill 2019-20.
The changes to the administrative provisions for the GAAR penalty will only apply to cases where a person becomes liable to a penalty on or after the date of Royal Assent to Finance Bill 2019-20.
All other changes will have effect on or after the date of Royal Assent to Finance Bill 2019-20.
Current law is contained in Part 5 Finance Act 2013 (FA 2013) (as amended by sections 155, 156 and 157 Finance Act 2016).
Section 209(6)(a) provides that HMRC cannot take any steps to make an adjustment under the GAAR unless the full GAAR procedural requirements have been complied with. Section 209(6)(b) provides that the power to make GAAR adjustments is subject to normal statutory time limits.
Section 209A – 209F (PCN Framework)
Sections 209A – 209F FA 2013 apply to enable an officer of HMRC to make a provisional counteraction under the GAAR within assessing time limits whilst preserving taxpayer safeguards provided by schedule 43 to FA 2013.
Ordinarily where there is a potential GAAR challenge, assessing action cannot be taken until the case has progressed through the GAAR process to the GAAR Advisory Panel and a notice of final decision has been issued under paragraph 12 of Schedule 43, paragraphs 8 or 9 of Schedule 43A, or paragraph 8 of Schedule 43B.
In practice this may risk the expiry of the time limit for making an assessment before the GAAR process can be completed.
To prevent this risk, the legislation allows HMRC to make a provisional counteraction either before or part way through following the requirements of the procedural schedules. Where no appeal is made against the adjustments specified in a PCN, those adjustments become final.
However, where the adjustments made under the provisional counteraction are appealed, HMRC must take one of a number of actions set out in the procedural schedules (43,43A and 43B) within a 12 month period to prevent the adjustments from being cancelled, resulting in HMRC losing the right to make the adjustments under both the GAAR and potentially also losing the ability to challenge the arrangements using other non-GAAR technical arguments.
Substantive notices under Schedules 43 or 43A
A substantive notice under Schedule 43 paragraph 3, or schedule 43A paragraph 1 or 2, informs the taxpayer that a designated officer considers the GAAR is in point. Despite this, a PCN may still need to be issued in order to protect a GAAR counteraction whilst HMRC completes the procedural requirements of the GAAR.
Schedule 43A paragraph 11 – equivalent arrangements
Pooling and binding allow the opinion of the GAAR Advisory Panel to be applied to other users of similar arrangements. It is only possible to pool or bind cases that are equivalent arrangements to the arrangements considered by the panel.
Schedule 43A paragraph 11 defines equivalent arrangements but paragraph 11(1) currently only refers to paragraph 1 purposes (pooling). Although the definition applies for all GAAR purposes this lack of clarity is potentially confusing.
Schedule 43C Paragraph 5 (Penalty under section 212A)
Schedule 43C paragraph 5 deals with the assessment of the GAAR penalty. An assessment must be made within certain time limits, one of which is within 12 months of the end of the ‘appeal period’. However, there is no definition of ‘appeal period’ so there is a lack of clarity.
There are instances in which HMRC is compelled to issue a notice making an adjustment before the GAAR procedure has been completed in order to comply with the time limits. Section 209(6)(a) is being amended to ensure that HMRC is able to do this.
The effect of any adjustment will be suspended until after the procedures are complete. This ensures that the GAAR procedure is able to work as intended whilst keeping the full taxpayer safeguards in place.
Other amendments to section 209(6)(a) and (b) ensure that adjustments made under the GAAR, following the new protective GAAR notice procedure, satisfy procedural and timing requirements.
The existing provisions relating to PCNs, sections 209A to 209F, will be repealed.
The legislation will provide for a new protective GAAR notice to replace the PCN. The new notice will enable HMRC to carry on its investigations beyond 12 months and mirrors the way normal tax enquiry notices work.
There will continue to be a safeguard that will allow taxpayers to appeal a GAAR adjustment. Appeals against GAAR adjustments can be progressed 12 months after the GAAR notification is issued (reflecting the existing 12 month window during which appeals are not possible to ensure that HMRC can progress its enquiries).
The repeal of s209A – 209F will also mean that there is no longer the risk of HMRC being unable to challenge tax arrangements on technical grounds if it decides not to pursue the GAAR.
The referral to the independent GAAR advisory panel is an important safeguard for taxpayers and this remains unchanged.
Other technical amendments
The revised legislation provides for substantive notices issued under Schedule 43 paragraph 3 or schedule 43A (pooling and binding) to have the same effect as a protective GAAR notice (in addition to their primary function), as long as they are issued within the ordinary assessing time limit prior to any GAAR adjustment being made.
Paragraph 11 of Schedule 43A is amended so that the definition of equivalent arrangements clearly applies not just for pooling purposes but also to binding and generic referrals.
Paragraph 5 of schedule 43C is amended to make it clear that an assessment of a penalty under section 212A must be made within 12 months of the adjustments made under section 209 becoming final, meaning the amounts arising as a result of those adjustments can no longer be varied on appeal or otherwise.
Summary of impacts
Exchequer impact (£m)
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This measure is not expected to have an Exchequer Impact. It supports the Exchequer in its commitment to protect revenue.
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure has no impact on compliant individuals. The only individuals that could be impacted are those who deliberately avoid providing information in order to frustrate HMRC’s ability to pursue enquiries into abusive tax arrangements under the GAAR. The measure is not expected to impact on family formation, stability or breakdown.
It is not anticipated that this measure will have any impact on groups sharing protected characteristics.
Impact on business including civil society organisations
This measure has no impact on compliant businesses. The only businesses that could be impacted are businesses who deliberately avoid providing information in order to frustrate HMRC’s ability to pursue enquiries into abusive tax arrangements under the GAAR. There is no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
It is possible that these changes may generate some operational resource savings, but these are not quantifiable at present and are not expected to be significant.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through the oversight of GAAR cases, and through communication with taxpayers and practitioners affected by the measure.
If you have any questions about this change, please contact Tony Zagara on telephone 03000 585265 or email: firstname.lastname@example.org.