FSCS considers 150 tax advice claims after legal go-ahead
The Financial Services Compensation Scheme (FSCS) has begun processing about 150 individual claims related to advice to invest in tax ‘mitigation’ schemes after being given the green light by lawyers.
The organisation said it had been receiving claims in relation to advice to invest in 80 different tax schemes, including film partnerships and environmental plans, by ‘authorised financial advisers’.
It began receiving claims in 2013 and has now gathered about 150 claims involving advice given by about 50 departed advisers.
The investments were made primarily through unregulated collective investment schemes (UCIS).
The FCSC said it does not yet know the value of the individual claims, or what sparked the wave of claims. But it said most were submitted once investors failed to obtain the tax benefits they expected to receive.
The FSCS said it had considered the liability of financial advisers amid the complex legal issues involved in tax cases but, after receiving legal advice, is now satisfied it can accept claims resulting from regulated advice.
It emerged in January about 100 retired footballers blamed their financial advisers for their investments in film schemes, which HMRC claimed were designed to avoid paying tax owed.
Crack-down
HMRC has been cracking down more heavily on tax avoidance schemes in the past year, most notably by sending out tax acceleration notices.
These notices, sent out at a rate of about 2,500 a month, asked recipients to pay back any tax owed within 90 days or face penalties of up to 15%.
HMRC started sending out these payment notices in September after being granted the power to do so.
It can only target investors in cases that are similar to ones already decided in court when the tax avoidance scheme is covered by HMRC’s Disclosure of Tax Avoidance Schemes rules or the General Anti-Abuse Rule.
Lawyers have previously warned advisers should notify their professional indemnity (PI) insurers early if they think the could be facing claims, else they could fall between the cracks of insurance coverage.
This is because advisers have an obligation to notify circumstances to their PI insurer. If they fail to do so and a claim comes in, their policy could exclude it.
Advisers could also become liable for inherited clients’ tax affairs, should they fail to expose tax evasion.
Tax evasion, as opposed to avoidance, is a criminal offence. The government proposed in the March Budget to introduce a new corporate criminal offence for firms failing to prevent tax evasion.
