What penalties are due under the General Anti-Abuse Rule (GAAR)? How much are they and when do they apply?

This is a freeview 'At a glance' guide to penalties and the General Anti-Abuse Rule (GAAR).

At a glance

Finance Act 2016 introduces a penalty when a taxpayer submits a return, claim or document to HMRC which includes arrangements which are later found to come within the scope of the General Anti-Abuse Rule (GAAR).

  • The penalty is charged at up to 60% of the counteracted tax. 
  • There are special rules to calculate this figure where the arrangements result in an unused loss or deferral of tax due.
  • The GAAR penalty will be charged in addition to any 'normal' penalties issued in accordance with existing penalty rules e.g late filing, error in a return etc, see Penalties section. 
  • The GAAR penalty will also be charged in addition to the new Serial tax avoiders penalty introduced by Finance Act 2016.
  • Total penalties will be restricted to 100% of the tax, or the maximum allowed under existing legislation if this is higher.

HMRC will give notice that a taxpayer may be within the scope of the GAAR, and the taxpayer will be given the opportunity to correct their tax position up until the point that their arrangements are referred to the GAAR Advisory Panel.  If they do correct their tax position they will not be liable to a GAAR Penalty.

In order for a penalty to apply HMRC must have issued either:

  • A notice of final decision to counteract a tax advantage
  • A notice of final decision to counteract a tax advantage in relation to tax arrangements for which a pooling notice or A notice of binding has been issued or
  • a notice of final decision to counteract a tax advantage in relation to tax arrangements for which a generic referral to the GAAR Advisory Panel has been made stating that a tax advantage arising from the tax arrangements in question is to be counteracted.

The new penalty applies to transactions entered into on or after 15 September 2016 (the date that the legislation received Royal Assent).

It applies to all taxes except VAT and National Insurance.

Legislation is also introduced which:

  • Allows HMRC to issue provisional counteraction notices within assessment time limits to protect against loss of tax.
  • Allows HMRC to issue a pooling notice which places tax arrangements into a pool with the lead arrangements.
  • Once a counteraction notice has been issued in relation to arrangements which are in a pool, HMRC are able to issue a notice of binding to taxpayers with equivalent arrangements so that they can all be counteracted by a single GAAR Advisory Panel decision.  

Small print

Legislation is included in the 2016 Finance Act as follows:

  • Section 156: provisional counteractions
  • Section 157: binding of arrangements and pooling
  • Section 158: penalties

Existing GAAR legislation is in Finance Act 2013 schedule 43.

Existing penalty rules are primarily contained in Finance Act 2007, schedule 24, but Section 158 FA 2016 also refers to penalties issued under:

  • Finance Act 2008, schedule 41 (failure to notify)
  • Finance Act 2009, schedule 55 (failure to make Returns)
  • Finance Act 2016 Schedule 18 Part 4 (serial avoiders)

Useful guides on this topic

General Anti-Abuse Rule (GAAR) (subscriber version)
What is the General Anti-Abuse Rule (GAAR)? When does it apply? 

Penalties: Serial Tax Avoidance
The Serial Tax Avoidance (STA) legislation was introduced by Finance Act 2016 to penalise taxpayers who repeatedly enter into abusive tax avoidance schemes.

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