GAAR could ‘create as many casualties as capture criminals’

Any move to introduce into the UK a general anti-avoidance rule could prove to be a disproportionate measure that would “create as many casualties as it would capture criminals”, Mike Fleming, partner at Straughans Chartered Accountants and Tax Advisers, has warned.

This year, the Treasury asked Graham Aaronson QC to consider whether a UK GAAR could deter and counter tax avoidance, while providing certainty, retaining a tax regime that is attractive to businesses and minimising costs for businesses and HMRC.

Mr Aaronson recommended that a ‘narrowly-focused’ rule would indeed deter abusive tax avoidance schemes and would contribute to a more level playing field for business

However, Mr Fleming, a former Inland Revenue tax inspector, said: “The Revenue’s claim that a GAAR would deter tax evasion and create a more level playing field for business ignores the danger that it could operate with all the subtlety of a sledgehammer.

“If not properly managed, such a ‘catch all’ rule could create as many casualties as it would capture criminals.”

Mr Fleming said that HMRC faces real challenges trying to “balance the books” in 2012, following a 2011 that has been plagued by a “series of blunders”.

Mr Fleming told FTAdviser: “Not only did half a million people have two months longer to make their second tax return payment - due to the fact that the Revenue ran out of paper - HMRC could also not conceal that the tax gap is still a staggering £35bn and that over 6million people are out of pocket, having overpaid on their tax return. All good reasons to avoid further scandal.”

In December, HMRC appointed Lin Homer, Transport Secretary, as chief executive as chief executive. Mr Fleming pointed out that Mr Homer has “no background in tax” at a time when the “system is in tatters”.

He said: “Surely it would make sense to have somebody who understands its complications overseeing it?

“It’s hard to be positive about HMRC’s ability to turn things around in 2012. In a year when growth is predicted to drop to 0.7 per cent, even an organisation in shipshape condition would struggle to balance the books.

“The extent of the problem is illustrated by the results of its recent people survey, which indicates widespread staff disaffection, with only 26 per cent feeling that there were opportunities for them to develop their career at HMRC.

“Looking into the crystal ball, the only way I can see improvement is if HMRC address the systemic issues which are consuming the organisation and reintroduce experienced tax professionals at board level to steer clear through a challenging year.”