Tax advisers will give tax planning advice. If you have received negligent advice to enter into a tax avoidance scheme and have received a Follower Notice or Accelerated Payment Notice from HMRC then you may have a claim for compensation for the financial loss that you have suffered.
Investing money into financial products carries risks and a tax adviser must ensure that the risks are adequately explained to a client before entering into the investment. It is also paramount to ensure said tax schemes are legal.
If you have been given bad advice or have a complaint about a financial adviser it is important that you take independent legal advice to seek compensation for your loss before the time limits expire (usually six years).
Have you been recommended a tax avoidance scheme by a tax adviser or accountant?
A tax avoidance scheme is used to minimise tax exposure. HMRC defines tax avoidance as: “bending the rules of the tax system to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little to no purpose other than to produce this advantage, it involves operating within the letter, but not the spirit, of the law.”
How do I know whether I am part of a tax avoidance scheme?
The following warning signs demonstrate that you might be part of tax avoidance scheme:
- Paying in the form of loans: some schemes designed for contractors involve payments in the form of loan that you are not expected to pay back.
- Substantial benefits: if the benefits of the scheme seem disproportionate to the money being generated.
- Money goes round in circles: a sign of an artificial relationship is where the money goes around in a circle back to where it started- or some other artificial arrangement.
- HMRC has given it a scheme reference number: An SRN is where HMRC have identified the arrangement as having the hallmarks of tax avoidance and are investigating it. Having an SRN does not mean that HMRC have approved the scheme (HMRC does not approve any tax avoidance schemes).
- Schemes HMRC have concerns about: click here for examples of tax avoidance schemes HMRC is looking closely at.
Do I have a claim against my tax adviser if HMRC have take enforcement action against me?
If you are implicated in a tax avoidance scheme it is imperative that you seek legal advice as soon as possible. Our professional negligence lawyers work in tandem with our specialist tax solicitors and barristers and provide a dual strategy in both advising you on your dispute with HMRC and advising you on whether a claim can be made against your the adviser who recommended that you enter into the scheme in the first place.
How do I prove that my tax adviser has been negligent?
In order to sue a professional for negligence, a claimant must establish three elements to the civil standard of proof (on a balance of probabilities, i.e. it must be proved by the claimant that the financial adviser’s breach of duty caused the claimant to suffer loss).
1.Demonstrate that the tax adviser owed you a duty of care: the boundary lines between when a tortious duty of care is owed or not owed is subject to tests that are being continuously evolved by the courts. A duty of care exists where the tax adviser can be shown to have objectively assumed responsibility (and the courts have demonstrated increasing willingness to find that a tax adviser is liable to whomever reasonably relies on their advice).
2. Establish that the tax adviser has breached the duty of care owed to you: proving breach will obviously vary depending on the individual circumstances of the case. A claimant needs to demonstrate that the breach shows that the tax adviser fell below the standards of a reasonably competent adviser in that speciality.
3. Prove that the tax adviser’s breach caused loss to you: you must prove both factual and legal causation. The test for factual causation is that “but for” the tax adviser’s breach you would not have suffered loss. Legal causation must also be proved i.e. the loss must be reasonably foreseeable at the time when the relevant duty was breached.
Examples of tax avoidance schemes
If you have been advised to enter into a tax avoidance scheme and you are concerned that HMRC will take enforcement action or if you have received a Follower Notice or Accelerated Payment Notice from HMRC, then take legal advice as soon as possible to assess whether you have claim against your financial adviser for negligence.
- Pension Schemes:
– Artificial Surplus: Certain pension schemes create an artificial surplus enabling a member of a registered pension scheme to remove funds from the pension scheme tax free.
– Employer Financed Retirement Benefits Scheme (EFRBS): this pensions scheme creates the establishment of an offshore trust where an employer transfers funds and trustees apply funds via sub-trusts to the benefit of the employees.
- Employee Benefit Trusts (EBT): EBTs enable a trustee to own an asset on behalf of a beneficiary which has the effect of minimising liability to pay National Insurance contributions and Income Tax. The point of an EBT is that employers pay into the trust which would then be distributed to employees in the form of tax free loans. Previously, those in EBT schemes could utilise the Liechtenstein Disclosure Facility which allowed taxpayers to disclose hidden assets to HMRC. However, this voluntary disclosure facility has been closed for new registrations since December 2015. Instead, HMRC recommends using the EBT settlement opportunity. EBTs are increasingly common complaints against financial advisers, if you believe that you are part of an EBT, get in touch with our expert tax and professional negligence lawyers for confidential advice.
- Stamp Duty Avoidance Schemes: examples include property sale arrangements that have been artificially structured to avoid paying the correct amount of SDLT. HMRC repeatedly challenge these schemes as it is a priority of the Commissioners to collect the correct amount of SDLT. For example, HMRC successfully challenged a Stamp Duty Land Tax (SDLT) avoidance scheme in the First Tier Tax Tribunal in Vardy Properties and Vardy Properties (Teesside) Limited  UKFTT 564 (TC). If you have suffered loss as a result of a SDLT scheme then you may have a claim against the financial adviser that sold you the scheme.
- Share Loss Relief Schemes: share loss relief schemes reduce the amount of tax payable on earnings by creating capital losses.
- Inheritance Tax Schemes (IHT): IHTS are utilised primarily to avoid inheritance tax. Some schemes exist to allow the homeowner to sell a property to a trust and leave the proceeds of the sale outstanding as a loan which would then be gifted to a second trust.
- Contractor loan schemes.
- Capital Gains Tax: Entrepreneurs’ Relief tax avoidance scheme.
- Employee Bonus Schemes: Growth Securities Ownership Plan tax avoidance.
- Gift Aid with no real gift.
- VAT: artificial leasing.
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