GAAR - impact on Ltd companies?

[DigitalUser]

Got an email through which, amongst other things discussed the implications of the GAAR in this year's budget

General Anti-Avoidance Rule (GAAR)

The general anti-avoidance rule (GAAR) could potentially have a significant impact on contractors utilising their own limited company. Taking low salary and high dividends to avoid paying high income tax is perceived as an avoidance scheme by HMRC and the Treasury. In the past, the government has made changes to prevent this type of tax avoidance strategy by intensifying the scope of settlements legislation.

Though currently untested, HRMC is set to apply the General Anti-Avoidance Rule to maximise its powers within the tax avoidance area. As contractors utilising their own limited company are considered as a soft target, they could be among the first test cases.

Contractors who use offshore schemes could also be impacted by the GARR, as Disclosure of Tax Avoidance Schemes (DOTAS) legislation is set to undertake further measures which will increase its scope.

This is the first I've heard of targeting limited companies with the low salary/high dividends route, but wanted to know if anyone else had heard something similar

[cojak]

From where did the email originate? An umbrella company?

[mudskipper]

From where did the email originate? An umbrella company?

You old cynic.

[DigitalUser]

From where did the email originate? An umbrella company?

Nope, a broker for contractor mortgages. Linky is Budget 2013: How this could affect contractors

[Wanderer]

This is the first I've heard of targeting limited companies with the low salary/high dividends route, but wanted to know if anyone else had heard something similar

They've been talking about doing it for years and they have done nothing so far. They looked like they were going to at one stage (the press called it a "family business tax") but they decided not to. Most likely it's because they want to encourage small businesses like ours and they have decided that the benefits to the economy outweigh the amount of revenue they lose by allowing the tax break.

There is no saying that they won't change the law in the future but then again the sky could fall on our heads too. I can't see them changing anything retrospectively so just get on with running your business. The much bigger worry than this is IR35...

[northernladuk]

Don't see anything new in there that hasn't been voiced, discussed or threatened for the last couple of years....

[Jessica@WhiteFieldTax]

There was a report in a professional journal of a low salary/hi dividend case falling foul of a GAAR elsewhere recently in NZ:

http://www.taxation.co.uk/taxation/A...4131/watch-out

You'll need to create a guest account, or google Penny and Hooper v CIR.

There are a number of similarities to the concerns voiced here; the NZ Supreme Court rules that artificially low salaries for a business owner fell foul of their GAAR.

That said, I'm not too worried; first, I can't see any uk govt being so stupid as to piss off the SME ownership sector wholesale; one sector (conractors and IR35 maybe), not very business out there.; secondly, the impact would be such that there would be ways around it.

However a GAAR certainly has the potential to be a loose canon, and could be devastating in the wrong hands. Ours has the safeguard of a oversight panel, but we have to hope they will be responsible.

[jamesbrown]

There was a report in a professional journal of a low salary/hi dividend case falling foul of a GAAR elsewhere recently in NZ:

http://www.taxation.co.uk/taxation/A...4131/watch-out

You'll need to create a guest account, or google Penny and Hooper v CIR.

There are a number of similarities to the concerns voiced here; the NZ Supreme Court rules that artificially low salaries for a business owner fell foul of their GAAR.

That said, I'm not too worried; first, I can't see any uk govt being so stupid as to piss off the SME ownership sector wholesale; one sector (conractors and IR35 maybe), not very business out there.; secondly, the impact would be such that there would be ways around it.

However a GAAR certainly has the potential to be a loose canon, and could be devastating in the wrong hands. Ours has the safeguard of a oversight panel, but we have to hope they will be responsible.

Interesting read. A summary here:

Deloitte | Penny and Hooper

[LisaContractorUmbrella]

Not long to wait chaps - Mr Osborne is probably packing his sarnies in his big red briefcase as we speak

[malvolio]

They've been talking about doing it for years and they have done nothing so far. They looked like they were going to at one stage (the press called it a "family business tax") but they decided not to. Most likely it's because they want to encourage small businesses like ours and they have decided that the benefits to the economy outweigh the amount of revenue they lose by allowing the tax break.

There is no saying that they won't change the law in the future but then again the sky could fall on our heads too. I can't see them changing anything retrospectively so just get on with running your business. The much bigger worry than this is IR35...

The "Family busines Tax" was NL's failed (or 'wimped out' might be a better name) attempt to reverse the Arctic Systems decision. that was shown to be both unworkable and inept in equal measure. About par for the course fo rhte Treasury then.

As for the GAAR, older readers may recall this article