L4 - SIMPLE Flashcards
What is the difference between tax avoidance and tax evasion?
Tax avoidance is legal (but often sneaky), using loopholes to reduce tax. Tax evasion is illegal, like lying on your tax return.
What is an example of legal tax avoidance?
Using government-approved tax reliefs or allowances in the way Parliament intended.
What case represents the traditional approach to tax avoidance?
IRC v Westminster (1936) – courts said if you follow the law exactly, you can avoid tax.
What are TAARs and what do they do?
Targeted Anti-Avoidance Rules – laws passed to block specific tax avoidance schemes.
What changed in the 1980s regarding tax avoidance in court?
Courts started using the “new approach” (Ramsay principle) to ignore artificial steps used just to avoid tax.
What did Furniss v Dawson (1984) decide?
If a transaction is pre-planned and includes fake steps to avoid tax, courts can ignore those steps and tax the real substance.
Why was Furniss v Dawson criticised?
It became too rigid, confusing, and led to inconsistent decisions.
What replaced the old rule in Tower MCashback (2011)?
A simpler test: look at what’s really happening and apply the law based on its purpose.
What is DOTAS?
Disclosure of Tax Avoidance Schemes – promoters must tell HMRC about schemes early so they can be blocked.
What is GAAR and what does it target?
General Anti-Abuse Rule – it tackles only abusive tax avoidance, not normal tax planning.
What test is used in GAAR to decide if a scheme is abusive?
The “double reasonableness test” – would a reasonable person see the scheme as unreasonable?
What penalty applies under GAAR if abuse is proven?
The taxpayer pays 60% of the tax they tried to avoid.
Who makes the final decision on whether GAAR applies?
A court or tribunal (not the GAAR Panel – they just give advice).
Does GAAR replace DOTAS or court-made rules?
No – it adds another layer. DOTAS, TAARs, and court cases still apply.
What powers were added after GAAR?
Naming and shaming, upfront tax payments, fines for scheme promoters and enablers, banning directors, and shutting down companies.
Who are “enablers” in tax law?
Anyone helping with abusive schemes – like lawyers, accountants, or banks.
Can scheme promoters be banned from being directors?
Yes – if their schemes go against the public interest.
What do critics say about GAAR?
It’s vague, rarely used in court, and judges still rely on older case law like Ramsay.
Why do some people support GAAR anyway?
It may still scare people away from creating or joining tax avoidance schemes.
