Professional indemnity insurers urged to robustly defend growing number of cases
There has been a spate of professional negligence claims lodged against the promoters of tax avoidance schemes following a clampdown on these schemes by HM Revenue & Customs (HMRC), says RPC, the City law firm.
According to RPC, the claims are made by individuals that took part in tax avoidance schemes that date from 2005 ? 2007, when a lot of schemes were set up that are now being challenged by HMRC.
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.
Defendants to the claims include boutique tax advisory firms, accountancy firms and financial advisers.
Robert Morris, Partner at RPC, comments: '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.'
'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. '
RPC says that the claimants are arguing that:
- The promoters of the schemes did not do enough due diligence when promoting the scheme.
- Insufficient warnings were provided as to the risks of an HMRC enquiry.
- The schemes were inappropriate for the individuals to whom they were sold and should not have been recommended to them in the first place.
RPC says that many of the claims it has seen 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.
Robert Morris explains: '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.'
Furthermore, certain claims firms are pursuing complaints before the Financial Ombudsman Service in an attempt to obtain a monetary award and then seek to claim further losses at court. In fact, the FOS may not have jurisdiction to deal with many complaints about tax avoidance schemes and it remains very uncertain that an individual can pursue a civil claim once a FOS award is accepted – an appeal to the Court of Appeal is pending on this issue.