Ineffective advice from tax advisors

In March 2014, chancellor of the exchequer George Osborne delivered a speech to the House of Lords in which he vowed to tackle tax avoidance schemes. This was a position which caused a great deal of discomfort among professional tax advisors in the UK, as it opened up the distinct possibility that they might face a surge in professional negligence claims from clients ordered to meet unpaid taxes as a result of the government’s more stringent stance.

The new approach to tax avoidance

Tax breaks and tax avoidance schemes have long been allowed and even encouraged by successive governments, often because of their ability to encourage long-term profitable growth, particularly in film, media, and intellectual property industries, where initial losses are frequently offset by future economic gains.

However, in 2014 the government sought to pass a Finance Bill through parliament. The bill would give HMRC the power to order the payment of tax from those shown to be participant in an ‘ineffective’ tax avoidance scheme before the particular taxpayer had its case fully investigated.

This move, said proponents of the bill, would shift the emphasis onto the taxpayer to prove his or her immunity from having to pay – as things stood the HMRC was obliged to build a case against the taxpayer. Furthermore, it would be possible for monies to be claimed retrospectively.

Why was the new approach required?

There were many pressing reasons for such a change. For example, at the time of the chancellor’s speech, there were around 65,000 tax avoidance cases awaiting resolution. Advocates argued that by bringing in a more stringent approach, the Accelerated Payment Notice, many of these outstanding disputes could be settled quickly and efficiently.

The Chartered Institute of Taxation and the Treasury Committee criticised the proposals, saying that it would lead to a ‘deluge’ of professional negligence claims against tax advisors.

The situation led to some panic among financial advisors, particularly in relation to their professional indemnity insurance, with many expressing fears that it could lead to significant increases in the cost of cover.

Professional negligence lawyers in London and Brighton

If you believe a tax consultant, or any financial professional, has caused you financial loss as a result of negligent advice, contact our Brighton and London teams today for advice about making a professional negligence claim against a tax advisor. Use our contact form, email partner Robert Johnson, or call directly on020 7822 4106