HMRC updates GAAR guidance
HMRC has updated parts A–C (covering the purpose and status of the GAAR, what it aims to achieve and specific points) and E (covering the GAAR procedure) of the GAAR guidance with effect from 16 July 2021. The examples in Part D have not been updated.
The main update is the addition of a new section E3.26 in Part E of the GAAR guidance to deal with the changes introduced by the Finance Act 2021 (FA 2021) to apply the GAAR procedure to partnerships consistently with how the tax enquiry and assessment process works for partnership returns.
The partnership GAAR provisions apply to all partnership returns made under TMA 1970, s 12AA or Sch A1 Pt 2, para 10, whether they are submitted before or on or after 10 June 2021 (ie Royal Assent to FA 2021). They do not apply where a partnership submits other types of returns (eg SDLT returns), in which case the normal non-partnership GAAR procedures apply.
The key general update (that applies to all taxpayers, whether partners in partnerships or not) reflects the FA 2021 change to the meaning of the closed period (the period during which no GAAR-related adjustments can be made) in cases where a notice of binding has been given. It now starts from the 31st day after the giving of the notice and ends immediately before the final decision notice is given, just like it always did for pooling notices. This is why para E3.22.3 has been amended to include a notice of binding and para E3.22.5 has been deleted.
Where the partnership GAAR provisions introduced by FA 2021 apply, main points covered in para E3.26 of the guidance include:
• any GAAR adjustments in respect of amounts included on partnership returns must be made at partnership level even though any tax advantage arises to one or more partners (referred to as ‘relevant partners’)—the adjustments made at partnership level flow through to the relevant partners through the partnership assessing framework
• the responsible partner (ie the partner that submitted the return or their successor) will be the recipient of, and have responsibility for dealing with, a GAAR notice (ie a protective GAAR notice, a notice of proposed counteraction, a pooling notice or a notice of binding) even if the responsible partner does not get a tax advantage from the tax arrangements
• any final GAAR counteraction notice will also be given to the responsible partner
• partnership arrangements can be pooled or bound to arrangements undertaken by other types of entity (not just partnerships)
• in order to stop the GAAR process, corrective action can be taken by the responsible partner, in which case it applies to all the partners, or by each relevant partner—if only some of the relevant partners take corrective action, the GAAR process continues
• only the responsible partner has the right to make representations
• if no appeal is made against the making of the adjustments specified in a Schedule 43D notice (or if an appeal is withdrawn or settled by agreement), the notice is treated as if it was a final GAAR counteraction notice
• although the GAAR penalty applies to each relevant partner (not to the partnership) in respect of the value of that partner’s tax advantage counteracted under the GAAR, any appeals against the GAAR penalty must be made by the responsible partner
16 July 2021