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In recent years tax avoidance has been the subject of considerable public concern, although there is no statutory definition of what tax avoidance consists of. Tax avoidance is to be distinguished from tax evasion, where someone acts against the law. By contrast tax avoidance is compliant with the law, though aggressive or abusive avoidance, as opposed to simple tax planning, will seek to comply with the letter of the law, but to subvert its purpose. As Treasury Minister David Gauke noted in 2010, there is a distinction between tax planning and tax avoidance, “although there will be occasions when the line is a little blurred.”[1]

In recent years HM Revenue & Customs (HMRC) has produced estimates of the tax gap, the difference between tax that is collected and that which is ‘theoretically due’:

  • The theoretical tax liability represents the tax that would be paid if all individuals and companies complied with both the letter of the law and HMRC’s interpretation of the intention of Parliament in setting law (referred to as the spirit of the law) … An equivalent way of defining the tax gap is the tax that is lost through non-payment, use of avoidance schemes, interpretation of tax effect of complex transactions, error, failure to take reasonable care, evasion, the hidden economy and organised criminal attack.[2]

In July 2020 HMRC published revised estimates, which put the tax gap at £31 billion for 2018/19, representing 4.7% of total tax liabilities.[3]  Over the last five years the tax gap has fallen consistently – from 7.2% of tax liabilities in 2013/14. HMRC’s analysis provides a breakdown of the gap by reference to the different types of taxpayer behaviour that lead to a shortfall in receipts, though as HMRC note, the “estimates give a broad indication of behaviours and are calculated using assumptions and judgment.” It is estimated that in 2018/19 the Exchequer loss from tax avoidance was £1.7 billion, while the cost of tax evasion was £4.6 billion.[4]

Historically UK tax law has been specifically targeted rather than purposive; in tackling the exploitation of loopholes in the law, governments have legislated against individual avoidance schemes as and when these have come to light.  Often the response to this legislation has been the creation of new schemes to circumvent the law, which in turn has seen further legislation – an ‘arms race’ between the revenue authorities and Parliamentary counsel on one side, and on the other, taxpayers aided and abetted by the legal profession.  In recent years concerns as to the scale of mass marketed tax avoidance schemes have led to three major initiatives to undermine this market and encourage a sea change in attitudes: the Disclosure of Tax Avoidance Schemes regime (DOTAS); the General Anti-Abuse Rule (GAAR); and the system of follower notices & accelerated payments notices.

Many commentators have suggested having legislation to counter tax avoidance in general: by providing certainty for both sides as to the tax consequences of any transaction, a ‘general anti-avoidance rule’ might dissuade the most egregious efforts to avoid tax, encourage taxpayers and legal counsel to redirect their energies to more productive activities and allow the authorities to simplify the law without fear of it being systematically undermined. In the late 1990s the Labour Government consulted on an anti-avoidance rule before deciding against it. Concerns over the scale of tax avoidance rekindled interest in the idea, though in its 2004 Budget the Labour Government announced a new ‘disclosure regime’ (DOTAS) as an alternative, whereby avoidance schemes would have to be disclosed to HMRC.[5]  Under DOTAS accountants, financial advisers and other ‘promoters’ selling tax avoidance schemes are required to notify the tax authorities of any new scheme they are to offer to taxpayers. Each scheme is given a reference number which, in turn, taxpayers have to use in their tax return, if they have used it. HMRC have used this information to track the take-up of avoidance schemes, challenge individual schemes in the courts if HMRC have assessed that they do not work in the way the promoter claims, or to address unintended loopholes in the law that some schemes seek to exploit.

In its first Budget in June 2010 the Coalition Government announced it would consult on a general anti-avoidance rule, and commissioned a study group, led by Graham Aaronson QC, to consider the case. In his report, published in 2011, Mr Aaronson recommended a narrowly focused rule targeted at ‘abusive arrangements’, and following a consultation exercise, in December 2012 the Government announced the introduction of a General Anti-Abuse Rule (GAAR) in 2013.[6]

In 2014 the Coalition Government announced the introduction of a system of follower notices & accelerated payment notices (APNs).[7]  Broadly speaking, in cases where someone is in dispute over their assessment, HMRC may issue a ‘follower notice’ if this arises from the use of an avoidance scheme that is either the same or has similar arrangements to one that HMRC has successfully challenged in court. Taxpayers must settle their affairs, or pay a penalty. HMRC may also issue a notice for an APN, where the taxpayer is required to pay the disputed sum ‘up front’, before their assessment had been definitively decided – either by the taxpayer agreeing HMRC’s assessment, or the courts making a final judgement in their case. Taxpayers do not have the right to appeal HMRC’s decision to the Tribunal.  Controversially, the Government proposed these arrangements would apply to outstanding disputes for past tax years, and that HMRC would also issue APNs in relation to avoidance schemes notified under ‘DOTAS’. Despite concerns as the ‘retrospective’ nature of the new regime, the new rules were agreed, with only minor amendments, in July 2014. By July 2017 HMRC reported that it had issued over 75,000 notices worth in excess of £7 billion and collected nearly £4 billion.[8]

The Government has continued to introduce provisions to tackle tax avoidance and tax evasion, including measures in each successive Budget.[9]  This paper discusses the incidence of tax avoidance and evasion, before looking at the development of follower notices and APNs, and further initiatives to reduce the tax gap. A second paper looks at the introduction of the 2019 Loan Charge, legislation to tackle mass marketed ‘loan schemes’ announced in the 2016 Budget, which has proved highly controversial.[10] Two other Library papers look at the Labour Government’s consideration of a general anti‑avoidance rule and the establishment of DOTAS, and at the Coalition Government’s decision to introduce a GAAR.[11]


[1]     HC Deb 12 July 2010 c706

[2]     Measuring Tax Gaps 2013, October 2013 p6. HMRC’s work on the tax gap is collated on

[3]     HMRC press notice, Tax gap falls to lowest recorded rate, 9 July 2020

[4]     HMRC, Measuring tax gaps 2020 edition – tax gap estimates for 2018 to 2019, July 2020 p5

[5]     Budget 2004, HC 301, March 2004, p202. Guidance on DOTAS is on    

[6]     Autumn Statement, Cm 8480 December 2012 para 1.178. Guidance on the GAAR is on

[7]     Budget 2014, HC 1104, March 2014 para 1.198-201

[8]     HMRC Annual Report 2016/17, HC 18, July 2017 p24. Guidance on FNS & APNs is on

[9]     For an overview of initiatives since 2010 see, HMT/HMRC, Tackling tax avoidance, evasion and other forms of non-compliance, March 2019.

[10]    The 2019 Loan Charge, Commons Briefing paper CBP8811, 17 March 2021

[11]    Tax avoidance: a General Anti-Avoidance Rule – background history (1990-2010), CBP2956, 16 January 2020; and, Tax avoidance: a General Anti-Abuse Rule, CBP6265, 17 September 2020.

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