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Published 11 July 2014
The Financial Times reported on 10 July 2014 that a "tsunami" of claims against professionals is being orchestrated by claimant solicitors and claims management companies, some of whom claim to have thousands of clients with total claim values running to hundreds of millions of pounds. These claims arise due to new powers granted to HMRC which were announced in the 2014 Budget.
The Finance Bill 2014 is likely to receive Royal Assent during the course of July 2014. When that takes place, HMRC's new powers will come into force. These changes could affect anyone involved in the insurance of accountants and financial advisers, although other professionals such as solicitors may also be implicated.
Of particular concern to insurers will be the "accelerated payment" provisions. In short, the accelerated payment provision are designed to end the cash flow advantage previously enjoyed by investors in tax avoidance schemes. Investors could delay having to pay tax whilst disputes with HMRC dragged through the courts. Now, in certain circumstances, HMRC can demand that the tax be paid upfront during the course of a dispute. This can come into effect where:
Where an accelerated payment notice has been served, the investor has 90 days within which to pay the disputed tax to HMRC. Non-payment can result in substantial penalties.
The indications are that HMRC will begin to issue accelerated payment notices after the Finance Bill receives Royal Assent this month. In evidence to the House of Commons Treasury Committee hearing on 8 July 2014, HMRC estimated that demands would be served on 43,000 taxpayers during the next 18 months. HMRC is likely to begin writing to investors in the higher value schemes first, and there is an estimated £4-5 billion of unpaid tax due to be collected in this manner.
Financial advisers and accountants will be the typical targets where they have recommended or advised upon an investment in an affected tax avoidance scheme. Solicitors may also be involved, for example in relation to schemes seeking to avoid Stamp Duty.
Previously, investors could hold on to the disputed tax for years as tax appeals were made. After that, if they lost against HMRC and had to repay the tax, investors were often wary of further litigation, or limitation issues might arise. In any given scheme only a handful of the investors might make a claim.
Now, because the investors in a given scheme will all be served with accelerated payment demands, the measure is bound to encourage groups of investors who have suffered losses to seek redress immediately – not only will they have paid substantial fees to enter into schemes, but they will still have to pay the disputed tax. This means more claims will be notified. Group actions involving scores of investor claimants are now more likely.
We have already begun to see the first wave of notifications in relation to these provisions as insureds seek to make block notifications, or seek guidance from insurers on whether and how to contact their clients to warn them of the impending changes. We have an specialist team experienced in defending such claims and providing related coverage advice.
Should you wish to discuss issues arising from these changes, or require any assistance dealing with the notifications, please feel free to contact Julian Miller or Tom Pangbourne for an initial consultation by telephone or in person.
London - Walbrook
+44 (0)20 7894 6859
Richard Highley, Dan Preddy