Hardly any of you non tax experts will be aware of this but the Coalition is putting forward a general anti avoidance rule (GAAR) which they think will stop the most abusive tax schemes.
Let me tell you, it won’t. A tax expert such as myself will tell you that this will allow any number of tax loopholes to remain in place, such as:
Paying dividends when salary would yield more tax
Paying salary when dividends would pay more tax
Making pension contributions
Claiming gift aid
Claiming research and development tax relief or vaccine research relief
Having a wife who is not UK resident
Marrying somebody who is not UK resident
Living over seven years after making a gift and avoiding inheritance tax
Claiming capital allowances
Not claiming capital allowances
Claiming trading losses
Buying jaffa cakes without paying an appropriate amount of VAT
Moving to another country
What we want to do is prevent all of these immoral tax avoidance practices by introducing a General Rule Against Planning Intent on Subverting Taxation (GRAPIST).
This rule would basically say, “yes, its legal, but it’s wrong”.
The great thing about this is that it would mean that all legislation is basically redundant. All legislation and all transactions would have to be viewed through this GRAPIST gateway, and whenever a transaction would produce a different result if it were viewed a different way, then that tax will be payable.
It is basically a rule that says The State can interpret any transaction in any reasonable interpretation under the law, or ignore the actual transaction and pretend that it was a similar transaction that yields more revenue for The State.
Which is what we all want.
This would mean that the UK would have laws that give unmitigated power to HMRC to ignore the legal form of all transactions.
Business would approve because it would provide absolute certainty on their tax liability. With a 30% rate of corporation tax, we could guarantee that a company with turnover of £100m million pounds, would pay £30m million pounds in tax.
If they don’t do that, they can pay a fee directly to HMRC for 5% of the tax that HMRC might think are at stake (presumably millions of pounds in the above example) and then HMRC will tell them that they should assume it’s due.
To make sure we don’t discriminate against small businesses, there will be a minimum fee of £1,000. This fee won’t be an allowable deduction, of course.
So businesses would flock to the UK certain in the fact that our laws provide a certain outcome of an amount of tax that is certain, and that amount of tax is certainly legally determined according to laws that are certainly equitable.
So Graham Aaronson’s argument about a GRAPIST creating horrific uncertainty is clearly wrong. He obviously didn’t anticipate that somebody could word a GRAPIST in such a clever way as I could that would undermine all tax legislation and case law and create the certainty of complete uncertainty in favour of HMRC.
And if MPs don’t vote through my GRAPIST it is because they don’t want to do anything about proper tax avoidance, they just want to stop the absolutely worst bits.
All the above practices are avoidance, they are included in my calculation of the tax gap, and this GRAPIST would stop them.
MPs, if you’re left in any doubt as whether to vote for this, just think, what would Murphy Richards do?
He’d vote for this bill, that’s for sure.