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Tax avoidance scheme investors seek compensation

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Four hundred clients of a claims management company are taking action against 90 financial advisers over failed tax avoidance schemes, according to the Mail on Sunday.

Rebus Investment Solutions is claiming that the clients, who allege mis-selling, ‘knew they were investing in tax-saving schemes but were not fully aware of the risks’.

The paper reported that the claims related to investments in film financing and other tax schemes, ‘which for many celebrity investors have gone spectacularly wrong’. Rebus was taking claims to the Financial Ombudsman Service (FOS) and, in some larger cases, was ‘considering legal action’.

The Manchester-based law firm Pannone was also taking on ‘clients worried that the courts are starting to take a dim view of contrived tax structures’. It had 20 clients and was ‘issuing claims against about the same number of advisers or tax scheme promoters’.

The Mail on Sunday report said consumer watchdogs had warned that ‘most people should just go direct to the firm they believe mis-sold the product – and if they don’t get compensation to take their claim to the FOS’.

It quoted an FOS spokeswoman as saying that it was receiving only a handful of tax avoidance scheme cases each week. ‘Generally these are groups of investors who are introduced to the investment by someone they know who isn’t FSA-regulated. There is very little we would be able to do in those cases,’ she said.

‘Pushy salesmen’

In June Patrick Stevens, president of the Chartered Institute of Taxation, suggested an extension of financial services mis-selling rules in order to ‘attack the promoters and sellers of [tax avoidance] schemes that have no real prospect of working’. He spoke out against ‘pushy salesmen persuading people to buy schemes that are probably too good to be true’.

A month later, the Society of Trust and Estate Practitioners warned that in many jurisdictions, ‘judges now adopt a purposive view of tax legislation to ensure that artificial schemes designed to defeat the purposes of the legislation do not succeed’.

Advisers who promoted such schemes ‘may reasonably be accused of mis-selling’, STEP said, shortly after David Harvey, STEP’s chief executive, had defended the ICAEW’s chief executive Michael Izza in an online debate on ‘aggressive tax avoidance’.

Izza had called on ICAEW members engaged in ‘the kinds of schemes highlighted in The Times’ – in its [“Secrets of the tax avoiders” series] to ask themselves whether they were ‘upholding the honour and reputation of ICAEW chartered accountants’.

Harvey said ‘fairness’ must be an overriding goal of any tax system, and some avoidance schemes ‘undoubtedly fail’ that test. ‘It is therefore important that all reputable tax professionals fully recognise the changing environment in the advice they give to their clients,’ he said.

A consultation on measures to tighten the disclosure of tax avoidance schemes (DOTAS) regime, established in 2004, closes today. The consultation document said the government believed the extension of mis-selling rules was ‘an interesting suggestion’ that it would like to explore further with interested parties.


Insurance specialists at the law firm Mayer Brown noted this month that the line between unacceptable tax avoidance and acceptable tax planning practices was ‘shifting’. Jim Oulton and Tim Shepherd, writing in Tax Adviser – the journal of the CIOT – said clients would ‘inevitably’ look to their tax advisers for reassurance about advice previously given.

Some advisers may well find themselves facing complaints or even formal claims, they added. ‘It is important when providing reassurance that advisers act cautiously, and avoid giving rise to further problems.’