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13.1.1. GAAR

General Rule

The General Anti-Abuse Rule applies to corporation tax (including amounts chargeable or treated as Corporation Tax), Capital Gains Tax, Inheritance Tax, Petroleum Revenue Tax, Stamp Duty Land Tax and Annual Residential Property Tax. A notable exception is VAT which already had a similar general anti-avoidance rule.

The primary policy objective of the GAAR is to deter taxpayers and would-be promoters from entering into abusive arrangements, and in situations where the taxpayer goes ahead with such arrangements, to  counteract on a just and reasonable basis tax advantages which would arise from abusive tax arrangements.   The GAAR came into force on 17 July 2013, affects any arrangements entered into or after the enactment date.  If the arrangements form part of a wider set of arrangements which include pre-commencement arrangements, the GAAR ignores the pre-commencement arrangements unless it can be demonstrated that the post-commencement arrangements are not abusive.  

The GAAR takes priority over the other parts of the tax legislation and is added to the UK’s existing anti-avoidance measures which includes over 300 targeted anti-avoidance rules (“TAARs”) that apply to particular tax provisions, anti-avoidance case law, and disclosure rules relating to tax avoidance schemes (“DOTAS”).  

Application of the GAAR

The GAAR only applies to aggressive or abusive tax arrangements, and abusive transactions are defined by reference to the double reasonableness test which states that arrangements are abusive if, having regard to all the circumstances, entering into the arrangements or carrying them out cannot reasonably be regarded as a reasonable course of action in relation to the relevant consideration.  As such the double reasonableness test addresses the following questions: (i) whether the tax arrangements are, having regard to all the relevant circumstances, a reasonable course of action; and (ii) if the view whether or not they are reasonable, is itself reasonable?

There will, of course, be a range of views as to whether a particular arrangement was a reasonable course of action.  It is therefore important to note that a person view (be it a QC, an accountant, solicitor or anyone else) will not inevitably lead to the conclusion that the arrangement is not abusive. It will be necessary to test that view to determine if the view itself can be regarded as reasonable, having regard to the process of the GAAR legislation and the factors that it requires to take into consideration.

Surrounding circumstances also need to be taken into account in considering if the tax arrangements are abusive for the purposes of the GAAR, which includes (i) whether the substantive results of the arrangements are consistent with the principles (whether express or implied) and policy objectives of the relevant tax provisions, (ii) whether the means of achieving the substantive results involves one or more contrived or abnormal steps and would cover the inclusion of a step or feature that would not otherwise have been included the terms contrived (abnormal are not defined and therefore take their ordinary meaning), and (iii) whether the arrangements are intended to exploit any shortcomings in the relevant tax provisions.

In relation to (iii) above, this in intended to address situations where (i) the drafting of the tax provisions leads to unanticipated consequences, for example where the tax result does not follow the economic reality of the arrangements, and (ii) in cases that are not straightforward, require consideration of the materials that show the principles and policy objectives of the provisions in order to help determine if a course of action that is prima facie technically permitted by the legislation is nevertheless not an anticipated consequence of the legislation.

Further, the GAAR legislation provides three non-exhaustive indicators of abusiveness and one indicator of non-abusiveness.  In relation to abusiveness, essentially, if the tax result does not accord with, and is more favourable than the economic result of the arrangements, this may indicate that the arrangements are abusive.  This is provided it is reasonable to assume that the result in each case was not the anticipated result when the relevant tax provisions were enacted.  In relation to non-abusiveness, where the tax arrangements accord with established practice accepted by HMRC, this may indicate that the arrangements might not be abusive.

In the Example section of the GAAR Guidance (Part D) both examples of transactions which HMRC seeks and would not seek to counteract are set out.  The list of these examples is available at The HMRC has also released an updated list of tax avoidance schemes that it believes are being used to avoid paying tax due. It is aimed at warning taxpayers from using such tax avoidance schemes. The list of such schemes is available at


Adjustments can be made by the taxpayer to whom the abusive tax advantage arises absent the GAAR, or by HMRC.

As there is no clearance procedure available for the GAAR, taxpayers are required to self assess their tax liability in accordance with the GAAR, and make the necessary adjustments.  

Adjustments made by HMRC have to be on a just and reasonable basis to counteract abusive tax advantages, and the following procedural acts which are intended as safeguards need to be followed:

  • the GAAR procedure is handled by a designated HMRC officer, who is sufficiently senior.  This is to ensure that the GAAR is applied consistently by HMRC;
  • the taxpayer is notified of the progress of the procedural steps including the notification of the proposed counter action, when the designated HMRC officer has referred the matter to the GAAR advisory panel and provision of copies of HMRC’s comments on the taxpayer’s representation; and
  • the taxpayer is given the opportunity to provide representations on the initial proposed counteraction and again when the matter has been referred to the GAAR advisory panel.

The adjustments may be made in respect of the tax which an abusive tax advantage has arisen, any other tax to which the GAAR applies and must be made on a just and reasonable basis.

There are situations where the determination of what is just and reasonable can be fairly straightforward, however in more complicated circumstances, this requires a consideration of the differential tax result between the abusive transaction and a hypothetical non-abusive transaction designed to achieve the same commercial or non-tax purpose that excludes the abusive tax-related features.  The comparable non-abusive transaction is not necessarily one which would have given rise to the highest tax charge, but where judged on an objective basis, should be one that the taxpayer would have most likely to have carried out absent the abusive features.

On 15 September 2016, amendments were made to the GAAR which:

  • allows HMRC to give provisional counteraction notices
  • introduce the concepts of ’pooling’, ’binding’ and ‘generic referrals’ where HMRC applyies opinions obtained from the GAAR Advisory Panel to users of equivalent arrangements;
  • introduce penalties for people who entered into abusive tax arrangements on or after 15 September 2016

A provisional counteraction notice tells the taxpayer about some or all of the adjustments that HMRC believes may be needed under the GAAR to counteract a tax advantage arising from tax arrangements. Such adjustments are referred to as ‘notified adjustments’. Issuing a provisional counteraction notice allows HMRC to make the notified adjustments before all the GAAR procedures have been completed. If the taxpayer disagrees with the ‘notified adjustments’ that are specified in the provisional counteraction notice, then the taxpayer can appeal against such adjustments.

Double Taxation

Where an adjustment for counteracting a tax advantage in accordance with the GAAR is made, it can be relieved by claiming consequential relieving adjustments which are just and reasonable.  Taxpayers will have to submit their claims requesting HMRC to make the consequential relieving adjustments within a strict twelve month time limit which starts to run from the day which the counteraction is final.

HMRC is then required to make such adjustments which are just and reasonable, and written notice describing the adjustments must be given to the claimant.

The GAAR Panel

The GAAR advisory panel is a panel of persons established by HMRC to initially review and approve the HMRC drafted guidance.  Additionally, a sub-panel comprised of three members with the appropriate expertise will be chosen from the full GAAR advisory panel to provide their opinions on reasonableness or otherwise of the relevant tax agreements which the designated HMRC officers considers that a tax advantage should be counteracted.  As there are no hearings, the sub-panel will consider each matter based on HMRC’s written summaries and the taxpayer’s views, where provided, during the GAAR process.

Depending on whether the sub-panel comes to a unanimous view, it can provide one or more reasoned opinion(s), or that they have insufficient information to come to a view on the reasonableness of the tax arrangements.  The test for consideration of the sub-panel is whether the tax arrangement is a reasonable course of action or otherwise, in relation to the relevant tax provisions. This is known as the single reasonable test, as there is no requirement for the sub-panel members’ views to be reasonable.

Criminal Penalty

Effective 27 April 2017, government introduced corporate criminal offense for failing to prevent the facilitation of tax evasion.

Under this, where an “associated person” (such as an employee, agent, contractor or subsidiary, etc) facilitates the evasion of tax of a third party while acting on behalf of the business, then such business would be at risk of a criminal conviction and unlimited fine if it cannot be evidence that reasonable preventative procedures were put in place to prevent the facilitation of tax evasion.