Experts agreed that the government body’s “draconian” abilities to issue accelerated payment notices (APNs) and follower notices will lead the whole industry to become “tarred with the same brush” as a small minority of advisers who promoted tax avoidance schemes.
An APN will require individuals to pay contentious tax before the final position of a case is agreed, while a follower notice allows established court rulings to be carried on to apposite cases.
Lee Robertson, chief executive at Investment Quorum, said HMRC’s “draconian” sanctions are likely to cause an acceleration in the longstanding rise of professional indemnity (PI) prices.
“While just a small minority involve themselves with these avoidance schemes, the whole industry will get tarred with the same brush,” he said.
He added that some PI providers have already withdrawn from the advisory circuit, and that he expects more to follow, potentially creating a gap for opportunistic insurers looking for orphaned advisers.
“Advisers are already being less adventurous, due to risk aversion in the wake of HMRC’s crackdown, and I think this will continue,” he said. “It is currently a particularly hostile environment in which to give advice.”
However, the Federation of European IFA’s chief executive Paul Stanfield said HMRC’s sanctions may not affect advisers because aggressive mitigation is usually provided by “professionals other than IFAs”.
But he added that, in “increasingly litigious times”, the possibility of reactionary consumers lashing out at those who provided them with tax-planning advice could inflame PI costs.
“It may well test the scope of many policies and will no doubt impact on the future range of such cover, and, of course, the renewal premiums,” he said.
Dean Mullaly, senior partner at Mark Dean Wealth Management, said consumers will “almost certainly” seek recompense from advisers, which was “very likely” to lead to a rise in PI premiums.
He noted the rise in costs could also lead to a decline in the amount of PI providers willing to enter the advisory market. “HMRC’s sanctions may result in a few companies having an insurance monopoly and consolidators buying up smaller IFA firms,” he said.
He also proposed a “gold standard” PI rate for those who have never recommended avoidance schemes.
“These products just don’t feel right, anyone with two brain cells can see that, and HMRC is really hurting those who have done nothing wrong.”
Similarly, Graham Webber, head of professional relations at Rebus, said HMRC’s “moving goalposts” has made insurers increasingly wary of IFAs’ abilities, meaning its newest powers will “almost certainly” lead to an increase in premiums.
He said HMRC’s sanctions could also create a “morally questionable” increase in the Financial Services Compensation Scheme levy, despite it being set unexpectedly low this financial year, at £276m.
“Everyone suffers because the whole industry has to pay into the compensation fund,” he said. “If there are more claims against this minority of advisers, everyone will have to pay more money. It doesn’t take an economist to work that out.”
