It may not come as a surprise that the new draft UK Finance Bill 2016 has introduced more severe penalties for taxpayers that are found to have fallen out of the General Anti-Abuse Rules (GAAR) remit.
A significant change to the rule is the introduction of a new penalty of 60 per cent of the tax involved where a tax advantage is counteracted under the GAAR. The GAAR penalty will be enforced in relation to schemes entered into on or after Royal Assent to the Bill.
The 60 per cent penalty may be incurred on top of an existing penalty for abuse under Schedule 24 of the Finance Act 2007, although the penalty will be capped at a 100 per cent limit (aside from offshore offences, where higher penalties may be applicable). The 60 per cent penalty is described as the ‘value of the counteracted advantage’ – i.e. the additional amount of tax payable as a consequence of the unacceptable arrangement that has been successfully challenged under the GAAR. Sixty per cent seems to be quite steep compared to the existing penalties, such as deliberate error, which is currently subject to a penalty of 20 per cent of the tax due to 70 per cent in the most extreme cases.
For serial tax avoiders the new provisions are a serious deterrent against the continued use of abusive schemes. If three schemes are defeated during a warning period the names of the person involved can be published. In these circumstances, ‘defeated’ is given a wide meaning, and includes any settlement of an HMRC enquiry involving a Disclosure of Tax Avoidance Scheme (DOTAS), whether it is settled privately or by a court decision.
UK Chancellor George Osborne said in his Autumn Statement on 25 November 2015, ‘We said GBP 5 billion would come from the measures on tax avoidance, evasion and imbalances. Those measures were announced at the Budget. Today we go further with new penalties for the General Anti-Abuse Rule we introduced, action on disguised remuneration schemes and stamp duty avoidance, and we will stop abuse of the intangible fixed assets regime and capital allowances.’
HMRC will notify those taxpayers it has identified as potentially within the remit of the GAAR so that they have time to correct the situation before it proceeds to the GAAR Advisory Panel. If adequately corrected, the penalty will not be applied.