IS THERE any difference between Gary Barlow’s seemingly complicated tax affairs and the ISA held by a recently-retired couple living in a modest bungalow in Broughty Ferry or Bearsden? After all, both have a connection to legally minimising tax.
The courts appear to believe so, which is why the Take That star has been ordered to repay millions of pounds in tax – and has, perhaps, exposed himself to yet undecided financial penalties.
However, this case was a rare success on this scale for HMRC, because such schemes are usually carefully constructed to stay within the letter, if not the spirit, of the law.
Most people cannot choose how much tax they pay. They can only choose to minimise their tax bills by using the rules to best advantage, which is what some very wealthy people go on and do. They are able to because the way tax rules are drawn up makes them susceptible to different interpretations which, if need be, could be challenged in court.
This is one reason the government introduced the General Anti-Abuse Rule (GAAR), the aim being to tackle tax avoidance schemes which are within the letter of the law and might be attractive to wealthy individuals but are considered abusive.
The introduction of the GAAR gives HMRC greater leeway to challenge schemes considered to fall foul of the spirit of the tax rules.
A similar approach is being taken by other countries with economies comparable to the UK, who are trying to achieve a “middle ground” based not just on what is technically legal but what is legal and seen to be morally right.
Of course, everyone has different views on what is morally right and the GAAR does create significant uncertainty in the law.
It is hard to think of it ever being possible to completely stamp out “abusive tax avoidance” (basically a term for sticking to the rules rather than the spirit of the rules). In this respect, the GAAR may be the best – and, indeed, the only – way to make redundant such schemes as the one administered on behalf of Gary Barlow.
• Andrew Paterson is a senior associate with Murray Beith Murray