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Tax avoidance could soon become illegal, as a new report from the Treasury recommends a General Anti-Avoidance Rule, GAAR. Although tax avoidance schemes have previously been used to legitimately reduce a tax bill, they have recently been scrutinised. MP Danny Alexander recently said:

“Tax avoidance and evasion are unacceptable in the best of times but in today’s circumstances it is morally indefensible.”

A new report issued by the Treasury has stated that the UK needs a rule for anti-avoidance. However, it could be difficult to rule which schemes are legal, and which aren’t. For instance, childcare vouchers in comparison with footballers protected cell companies offshore. GAAR has been the subject of many discussions for some time. However, experts believe that a large number of people would suffer as a result, in order to punish a small number. According to the Treasury report, a general rule against tax avoidance is needed in the UK, helping with the prevention of schemes

“widely regarded as an intolerable attack on the integrity of the UK’s tax regime”.

The report acknowledges that UK businesses are reliant on tax planning, which is reasonable so it is unlikely that any rule would stop tax avoidance completely. Some ‘safeguards’ would be applied to stop a general anti-avoidance rule if it would ultimately be deemed unfair or heavy-handed. HMRC would also have to prove that an arrangement is unreasonable, rather than responsibility being placed on the taxpayer. In these cases, an Advisory panel would consider the case further. It will be made clear in the Budget 2012 whether such a rule will be enforced.

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