The coalition government has once again opened the discussion on the introduction of a general anti-avoidance rule (GAAR) to tackle fraudulent tax avoidance.

In December 2010 Graham Aaronson QC was appointed to examine if such a rule should be introduced and whether it would bring about positive results. The government considered that GAAR might be an effective way to prevent tax avoidance and to make sure businesses feel secure and encouraged by the UK tax regime.

A year later, in his recommendations, Aaronson noted that a carefully focused GAAR would reduce tax avoidance and would make the tax regime fairer for UK firms, while it would also have a positive effect on taxpayers' perception of HMRC.

However, he thought that a universal GAAR should not be introduced. At first, steps could be taken to come up with a GAAR targeted at the key taxes - capital gains tax, income tax, corporation tax, etc. to cover the distinctive details about each of them.

The report will be considered by the Government and ways to include the recommendations into the current legislation will be examined. It is expected that Whitehall will reveal its view and plans in the Budget in March.

Experts believe that it is not likely that GAAR would be applied universally, but other, more focused regulations, may not be too far into the future.

The History of GAAR's

The establishment of a GAAR was first proposed back in 1997 by the Labour Government, but after lobbying from the accountancy sector, the idea was dropped amid concerns that it could be unworkable.

Australia, Canada and New Zealand and have similar laws, and an interpretive element to the legislation has been developed in Canada.

How does a GAAR work?

A GAAR is based on principles rather than prescriptive rules (unlike targetted provisions, such as IR35), and enables new case law to be developed afresh. The idea of using a GAAR was first mentioned in the June 2010 Emergency Budget which stated that they would "examine whether there is a case for developing a general anti-avoidance rule."

This legislation would give HMRC more powers to make judgements on issues of tax avoidance and allow closer scrutiny of income tax, corporation tax, capital gains tax and inheritance tax.

E advice@hwfisher.co.uk