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.