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Royal Courts of Justice
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Some small comfort for tax scheme introducers


Karen Eckstein explains why the Knights case is important for accountants, who previously introduced clients to tax schemes and who now need professional indemnity insurance cover.

15th Oct 2021
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What does the decision in Knights and Townsend Harrison Limited [2021] EWHC (QB) mean for claims against accountants who have introduced clients to promotors of tax schemes?

We are currently in a very hard insurance market. Many accountants who historically earned substantial fees from introducing their clients to promoters of tax schemes are now finding that it is difficult to obtain professional indemnity insurance cover on commercial terms or at all.

Insurers have been very wary of the risks to which they would be exposed, as a result of potential claims from clients who entered into tax schemes. Those clients may find they are unable to pursue the promoters, who have all but disappeared, leaving only the introducer – the accountant – as a potential source of cost recovery once HMRC comes knocking at the door.

The Knights case is a useful summary of the law and a reassurance that, just because you acted as an introducer, does not necessarily mean that you owe a client a duty of care in relation to the underlying tax scheme.

What did Knights say?

In Knights, the claimants sought damages from THL Accountants who had introduced them to promotors of three tax schemes and to an investment in a foreign exchange trading scheme. Two of the tax schemes failed to achieve the tax savings that were hoped and the third is also likely to fail in the same way. The investment in the trading scheme failed and caused a total loss of the funds invested. In this article I am considering only the allegations in relation to the tax schemes.

The claimants alleged that THL owed a duty of care to them when making the introductions to the scheme promoters. Their representatives argued that THL encouraged them to enter into the schemes and as a result of its breaching that duty of care the accountant ultimately caused them to suffer losses.

THL responded that, although it was the claimants’ accountant, the firm acted merely as an introducer of the tax schemes and made it clear in its terms of business and limitation of liability letters that it was not, and could not, provide advice in relation to the schemes. THL denied that any duty of care arose in respect of any of the introductions and denied that it gave any incorrect advice or made incorrect statements in respect of the tax schemes. The firm denied that the claimants were entitled to or in fact relied on THL, or that THL caused the losses complained of.

High Court’s decision

The court considered the facts at length, including whether any limitation (time bar) defence existed. The court found that the claim in relation to one of the schemes was time barred.

The court considered the question of whether a duty of care arose in any event. In his judgment HHJ Cawson QC stated that there may be circumstances in which an accountant, in introducing a client to a tax scheme in the context of an ongoing professional relationship, may owe a duty not to introduce an unsuitable client to an unsuitable tax scheme and that there may be circumstances in which the nature of the relationship was such that it was incumbent upon the accountant to proffer advice in relation to the tax scheme and the implications of entry into the same.

However, he went on to say this would all be dependent upon showing that the circumstances were such that the accountant had assumed responsibility for such matters and that would, in turn, depend on whether the accountant reasonably foresaw that the client would rely on him in respect of such matters and whether the client did, in fact, reasonably rely on the accountant in relation thereto.


In the Knights case, it was held that the claimants did not establish that any duty of care existed and that no breach of any such duty therefore had been established. The judge went on to state that, even if any breach of duty did exist, the claimants had not established causation in fact – essentially ruling that the claimants would still have entered into the tax scheme.

Key evidence

In relation to one of the schemes, the claimant admitted that he was aware of the risk that tax would be payable, but was prepared to enter into the scheme in any event.

This sort of evidence is critical in considering these claims, as they can be determinative in the defence of the claim.

Quantifying the loss

In looking at the quantum of any claims, the judge confirmed that you would have to give credit for the tax that was saved as a result of entry into the scheme. The claim would, in essence, be the difference between the tax payable in the settlement with HMRC and the tax saved as a result of the entering into the scheme.

In other words, it would not usually be appropriate to grant an indemnity for the tax payable under the scheme. One would have to consider what the claimants would probably have done in the alternative scenario.


This is an important judgment, because it goes through the steps to consider in relation to any tax scheme claim:

  1. Whether a duty of care was owed to advise on the facts of the specific case
  2. Whether that duty was breached
  3. Whether that breach has caused loss; and
  4. How much was the loss?

This will require an analysis of the facts of the specific case and the claimant’s specific intentions at the relevant time. This should include what would have happened if the claimant had been properly advised at the time and what steps they would have taken had they had proper advice. A detailed analysis of an accountant’s historic case load, taking into account the views expressed in Knights, can be used to present to insurers when seeking to renew professional indemnity insurance if firms have a history of tax scheme introductions.


The decision in Knights should not be taken as a carte blanche that all introducer claims will be successfully defended. It merely confirms that each claim needs to be considered carefully on its own facts.

Replies (4)

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By Paul Crowley
15th Oct 2021 15:17

A link from Justin

Not much sympathy here for accountants being paid to make introductions.
But at the time people were being scared by comments that failing to consider tax avoidance was itself likely to be professional negligence.

Thanks (1)
Replying to Paul Crowley:
By Hugo Fair
15th Oct 2021 17:34

"Not much sympathy here for accountants being paid to make introductions" ... and that's the crux of the matter.

Whilst accountants will often find themselves in an invidious position (caught between the demands to make tax-efficient suggestions and sticking to aspects in which they're qualified), there's no need for the greed in taking commissions - and no moral basis for then expecting to do so without commensurate liabilities.

So, whilst I follow the logic in the article's conclusions, I'd point out that you don't have to make formal (commission-based) introductions ... you can restrict yourself to observing that you've 'heard interesting things about X' - whilst of course pointing out that this is NOT advice or a recommendation (for which a tax adviser should be sought).
And if you are a tax adviser, then act like a grown-up and pay the excessive PI premiums (which you can afford if this is your line of business).

Thanks (5)
By Ian McTernan CTA
18th Oct 2021 11:12

I suspect that there will be many claims in future against accountants who have pushed incorporation of property portfolios into limited companies without really considering whether it is appropriate or whether the costs are claiming a tax saving because only half the net profit is extracted as dividend even when told the client wants it all and lives off the income, or ignoring the stamp duty costs as 'you can just remortgage that'....

Thanks (0)
By North East Accountant
18th Oct 2021 12:19

So glad we have never introduced to these "snake oil salesmen".

Thanks (0)