Tax-efficiency or tax-avoidance?

That’s what the General Anti-Avoidance Rule (GAAR), which the government intends to implement, is charged with establishing.

GAAR is a catch-all tax avoidance rule which is set to determine the difference between tax avoidance and genuine tax planning. Whilst some schemes are technically legal, the GAAR will establish whether their main purpose is essentially tax avoidance.  Schemes set up for genuine tax planning will not be affected.

The rule is expected to create greater fairness across business, make the tax system less complex, and eliminate the legal uncertainties regarding tax avoidance schemes. Amongst the taxes to which the GAAR will apply are Income Tax, Capital Gains Tax and National Insurance Contributions.

The government recognises the importance of responsible tax planning in any complex tax regime, and any scheme employing such planning will not be impacted by the GAAR. The aim of the GAAR is purely to root out those schemes which abuse the integrity of the UK tax regime in the interest of fairness, simplicity and legality.

The report regarding the government’s move towards the GAAR is due to be considered by the Treasury with a view to announcing its intention to create it at the 2012 Budget.

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