Tax avoidance scheme users turn on promoters

A spate of professional negligence claims have been launched by individuals who took part in tax avoidance schemes between 2005 and 2007, according to a City law firm.

Following a clampdown on the schemes by HM Revenue & Customs, lawyers at RPC say former users with hefty tax and interest demands are trying to recoup their losses by claiming the advisor or promoter was at fault.

In particular, the individuals have accused scheme advisors, or promoters, of providing negligent advice, such as by giving insufficient warnings or failing to carry out enough due diligence, in recommending or introducing the scheme to them.

“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,” reflected RPC partner Robert Morris.

“Before the credit crunch many of these schemes were sold and never challenged by HMRC. If the promoter properly explained the risks as they were at the time and the individual decided to take part, it’s going to be very difficult for them to say they were badly advised.”

As a result, RPC believes that “many” of the claims are unlikely to succeed because they are either time-barred; have been launched with the benefit of hindsight or are yet to be considered by the tax tribunals.

Mr Morris added: “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. ”

29th April, 2013