PII lawyer warns advisers over tax avoidance schemes
Advisers should notify their insurers early if they think they may be facing claims from advice to invest in tax avoidance schemes, a professional indemnity insurance (PII) lawyer has warned.
Solicitor at commercial claims resolution firm Triton Global, James Field, said acting late could mean advisers risk “falling between the cracks” of insurance coverage.
HMRC has cracked down on a number of tax avoidance schemes in recent years, including film schemes and so-called Enterprise Zone Trusts.
If they failed to notify and a claim comes in some policies would exclude matters which should have been notified.
New rules allow it to send out ‘acceleration payment notices’ in cases that are similar to ones already decided in court, or it when the tax avoidance scheme is covered by HMRC’s Disclosure of Tax Avoidance Schemes (DOTAS) rules or the General Anti-Abuse Rule (GAAR).
When such a letter is received the tax has to be paid within 90 days or penalties ranging from 5%-15% are levied on top.
HMRC started sending out acceleration payment notices in September and is expected to continue targeting those it believes have avoided paying tax at a rate of 2,500 cases a month.
Field said: “With the [acceleration payment notices] coming out at 2,500 a month we would expect those coming through soon. The important point for advisers is they want to have the papers available. It’s much easier to defend claims where you have all the paperwork available.
“You want to be able to make a decision [as soon as possible]. If you are liable you want to pay out early.
“The question advisers will want to be asking themselves is do they feel the advice they have given their client will give rise to a claim, in which case they should speak to their insurers.”
Field warned that advisers have an obligation to notify circumstances to their PI insurer.
If they fail to notify and a claim comes in, some policies would exclude it.
“[PI insurers could say] ‘you’ve never notified us, it doesn’t fall into our policy’. The new insurer could also refuse to accept the claim, meaning the adviser “risks falling between the cracks”, he said.