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HMRC takes on tax scheme promoters

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10th May 2013
Freelance journalist
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There has been a spate of professional negligence claims against the promoters of tax avoidance schemes after a clampdown on "aggressive" avoidance by HMRC, according to legal and accountancy experts.

According to law firm RPC, the claims are made by individuals that took part in tax avoidance schemes that date from 2005 to 2007, when a lot of schemes were set up that are now being challenged by HMRC. Those being sued include "boutique" tax advisory firms, accountancy firms and financial advisers, RPC said.

Bluefin recently highlighted a RPC blog which said the claimants are arguing that the promoters of the schemes did not do enough due diligence when promoting the scheme; gave insufficient warnings about the risk of an HMRC enquiry into the scheme; and that the schemes were inappropriate for the individuals they were sold to.

Individuals who have been contacted by HMRC and agreed to pay the disputed taxes and interest are trying to recoup their losses by claiming that their advisers or the scheme’s promoter gave them negligent advice in recommending or introducing the scheme to them.

Robert Morris, partner at RPC, said: “HMRC is poring over many of the tax avoidance schemes that were set up before the financial crisis. It is taking a very aggressive approach towards individuals and is frightening many of them into paying the disputed tax, without having to show that the tax is lawfully due.”

Rather than challenging HMRC and saying that the tax scheme worked, many individuals are deciding to pay up and then trying to recover their money with a negligence claim, Morris said.

“A lot of professional indemnity insurers are concerned that some of the negligence claims they are being notified of are shaky at best. We urge them to consider defending the growing number of claims robustly.”

One large insurance company, which asked not to be named, said litigation against failed tax avoidance schemes was a growing problems for providers of professional indemnity insurance.

Julia Penny, content manager for audit and accounting at Wolters Kluwer, said: “In a general sense PI claims could increase, but often these schemes are run by firms that have a higher risk profile in the first place, so this won't necessarily affect the majority of firms.

Clamping down on such schemes is likely to bring an increase in the number of claims against accountants for failed schemes, she said. "There is a chance that the individuals entering into these schemes did not understand the risks involved or will seek to say they did not and sue their accountants.”

Orchard, which lends money to accountancy firms, said that some of its accountancy clients are worried that some people who have used failed tax avoidance schemes are using  accountants’ PI cover as a way of recouping their costs from HMRC investigations.

Replies (11)

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By sdphilpott
10th May 2013 12:51

Selling tax schemes

I have come across people who probably have been mis-sold these schemes and not been warned of the risks, although it should be pretty obvious there are no cast iron guarantees. When I talk to clients about potential schemes I ensure they are fully aware of the risks involved before they sign up. I also get them to sign a document that confirms this in writing so this argument can't be used down the track. In my experience most tax providers are pretty honest with the client about the risks involved but I have heard a fair few horror stories too. The fact is you need to have a certain mindset if you are going to get involved in these schemes and clients who are going to worry constantly about the potential failure of a scheme should not be getting involved in the first place.

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By JCresswellTax
10th May 2013 14:16

Absolutely 100% spot on Mr Philpott

Actually couldnt agree more...

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By johnjenkins
10th May 2013 14:57

First of all

you have to look at the scheme and legalities.

If it's legal then you have to look at whether it's artificial.

When I start hearing about "risky schemes" and "clients should be aware of a potential failure" I tend to think "are these people really Accountants" or are they just greasy sales people. We've got enough of them in the banking industry.

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By carnmores
10th May 2013 16:06

@John

I wish I had the nous to work out whether its legal there all artificial !

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By GuestXXX
17th Mar 2015 15:52

.

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By Trevor Scott
13th May 2013 13:04

The word “Scheme”, itself, gives away that there's a fundamental

issue but they won’t tackle the real problem….being excessive taxation in certain countries.

 

Nothing will stop, and why should it, a multi-jurisdictional legal entity fulfilling its duty to maximise shareholder value through good tax planning.

 

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By ver1tate
13th May 2013 17:52

HMRC takes on tax scheme promoters

The word 'scheme' itself should be enough to warn those planning to employ it that it is not entirely legal. Among the definitions of this word are PLAN, PLOT, CONSPIRACY.

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By Trevor Scott
13th May 2013 18:07

Too much ....

.... to claim that a scheme is illegal (by virtue, under basic logic, of your claim that such isn't entirely legal). Some schemes work and are legal.

Do you work for HMRC?

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By johnjenkins
14th May 2013 09:37

The schemes are

legal otherwise HMRC would be able to claim "tax evasion" rather than agressive "avoidance". No doubt some bright spark will think of an RTI system of sales tax so that it wouldn't matter where a company is based.

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By VIOLA26
14th May 2013 10:46

Agree with Mr Philpot

I agree with Mr Philpot entirely.

Also, if a client decides to sue the promotor / accountant rather than allow the promotor to pursue the litigation through the Courts (ie: before the technical outcome of the planning is confirmed and litigation has run its course) isn't the promotor's defence that it wasn't given the opportunity to mitigate the loss - often appeals against a decison in the FTT in HMRC's favour are overturned in the higher Courts. (This assumes the costs of ongoing litigation are pre-funded and the client isn't being asked to make an additional cost contribution towards ongoing litigation). 

 

  

 

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By The Black Knight
14th May 2013 11:09

What are the damages?

The tax that could have been saved by using a different avoidance method?

The penalty for taking reasonable care? 0%

The costs of the client not reading the contract? Contributory negligence?

The costs of the client voluntarily surrendering the tax? Isn't that deliberately engineering a claim = no damages / insurance fraud.

The costs of a low interest loan?

Can't see it.

Expect a hike in your P.I. cover on the back of this bullshit though?

 

I should add I am not keen on these schemes but they are low risk and a low interest loan. Why wouldn't an unrepresented client just stick to their guns and let the tribunal sort it out rather than just pay up!

 

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