HMRC has been on a well-publicised drive to reduce the tax revenue lost by the UK to illegal or simply ‘highly aggressive’ tax avoidance schemes for the past few years, with measures introduced in at least the last three Budgets to address the problem.
While a recent report from the National Audit Office pointed out there is “little evidence HMRC is making any progress in preventing the sale of highly contrived tax avoidance schemes”, City law firm RPC said HMRC is looking at schemes established before the financial crisis and asking many individuals to repay large sums of tax.
The law firm added most individuals who have used tax avoidance schemes are afraid to dispute the matter with HMRC and so have simply paid up and are now trying to recoup their losses by claiming 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.”
RPC said many professional indemnity insurers are concerned some of the negligence claims they are being notified of are “shaky at best” and Morris said he would urge advisers to “consider defending the growing number of claims robustly”.
Specifically, RPC said claimants are arguing:
- 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
The law firm said 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.
Morris added: “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.”
