The measure

Anti-avoidance legislation across many parts of the Tax code increasingly includes provisions, referred to as "unallowable purpose" tests which provide HMRC with an additional weapon to attack arrangements where they perceive the obtaining of a tax advantage to be a main purpose of being party to the arrangements in question. These tests are generally in addition to specific anti-avoidance legislation.

Following announcements at Budget 2009, HMRC released a consultation document on 31 July 2009 which discussed the idea of applying a framework approach to any new unallowable purpose tests as well as inviting comment on draft generic guidance on unallowable purpose tests. In the PBR, HMRC released the results of this consultation and their proposed next steps.

In summary, HMRC have proposed to revisit their draft framework and purpose test guidance with a view to:

• Providing an environment in which the benefits of purpose tests outweigh any administrative burden;
• Ensuring that purpose tests articulate the policy objectives in a way that is understood by taxpayers;
• Maximising certainty to taxpayers while at the same time protecting tax revenues to an appropriate level;
• Improving HMRC's approach to checking compliance with purpose tests such that the burden on those taxpayers who do comply is minimised.

With regard to certainty, HMRC have, not surprisingly, ruled out a specific clearance system on the basis that it would take up too much resource as "purpose" is always subjective in nature requiring a detailed examination of the facts and documentation to hand.

There was strong support for the "filter" approach to purpose tests where it is possible to identify such filters. Indeed, HMRC would welcome comments where any potential filters can be applied to existing unallowable purpose tests. There was also a strong feeling among respondents that any counteraction under a purpose test should be limited to the tax advantage identified; HMRC agreed that it should be made clear in the statute where this is not the case and policy objective behind it, and this is welcomed as otherwise it creates unnecessary uncertainty.

Who will be affected?

Companies and individuals.nbsp;                                                  

When?

Summer 2010