Understanding the context of the GAAR panel
The GAAR panel is a group of 10 tax experts appointed by HM Revenue & Customs from different areas of direct expertise. Their role is to provide advice on tax arrangements being looked into by HM Revenue & Customs, or to provide an opinion on tax arrangements being proposed by enablers of these schemes. In their assessment of the tax arrangements, they will make a decision whether the scheme amounts to tax avoidance, meaning it is outside of the scope parliament gave to the legislation when it was created.
On receipt of a referral, a sub panel of 3 of the members, based on their specific expertise, is created to review the topic and provide their opinion. A decision will be provided within 111 days of the referral initially being received. These opinions are then published on the Gov.uk website for access by the general public. As can be seen from this example, the full decision document is published along with a brief summary as to whether the tax arrangements are appropriate.
How does the GAAR panel work with HMRC enforcement?
It is important to remember that the GAAR panel is an advisory position. Any decision they put forward is an opinion and not a judicial decision. HM Revenue & Customs do not have to follow their opinion if they disagree with the panel’s decision. However, it should not be treated lightly. It should also be noted that there is no right of appeal against a decision made by the GAAR panel itself.
Before enforcing on what it considers an abusive tax arrangement, HMRC must first obtain an opinion for the GAAR panel on the tax arrangement. This only needs to be obtained once for a defeated tax arrangement and can be used against multiple parties all using the same tax arrangement. Obtaining the opinion first also ensures that HMRC has its evidence in place in advance and is not pursuing genuine tax arrangements which are in line with parliamentary intent.
Once a decision has been obtained, HMRC can make adjustments to the tax arrangements and impose penalties, formally treating them as tax avoidance schemes. Whilst the GAAR panel’s decision cannot be appealed against, a tax appeal can be brought against HMRC on the decision to enforce on the opinion. An appeal should only be brought where you have strong grounds for believing the decision is incorrect. Whilst it is not binding, the GAAR panel decision will form a part of the evidence presented by HMRC, and will carry weight with the court.
Making representations to the GAAR Panel
Once a referral is made to the GAAR panel, notice will be given to any businesses or tax scheme enablers that an opinion is being sought in relation to. On receipt of this notice, a period of 21 days is granted to provide written representations to the GAAR panel. This is to justify why they believe the tax arrangements are appropriate. This time period may only be extended at the discretion of the GAAR panel on receipt of a written request for the same.
These representations must be made to both the GAAR panel, along with the designated officer at HM Revenue & Customs who is dealing with the case. The designated officer will also be able to provide their own comments on the representations, which have been made to the panel.
Penalties relating to GAAR Panel decisions
When considering tax arrangements, the published decisions of the GAAR panel must be taken into account. The most recent decisions can be found online. Along with this, the GAAR panel has maintained a tax avoidance guidance document. This compiles the findings of the previous opinions of the GAAR panel. Also, the general position on tax arrangements which have been deemed to be inappropriate and abusive.
The penalties for entering into a tax arrangement which is similar to one which has already been found against are significant. The penalties applied can amount to 60% of the tax due. This is along with having to pay the tax balance after adjustments have been made by HM Revenue & Customs.
What if the GAAR Panel deems my tax arrangement as inappropriate?
If the GAAR panel finds your tax arrangements are inappropriate and abusive, the matter will be referred back to the designated officer in HMRC enforcement. The enforcement team will then use the powers available to them to collect the debt. At worst, this could be a winding up petition against your business or bankruptcy petition against you personally.
HM Revenue & Customs’ main aim is to collect the largest amounts of tax possible against the debt. Their early estimates are that around 50% of users of tax avoidance schemes will be balance sheet insolvent. Therefore, early engagement with HMRC is key where you are in a position to make payments, even if it is not for the full amount. If you are unable to come to an agreement, it may be time to consider your formal insolvency options. Our business rescue experts can take you through these options and help you take control of the situation.