Complex tax avoidance schemes have increasingly become a target of HMRC, particularly in light of the adverse publicity given to such schemes in various news media.

Budget Changes impacting on Tax scheme advisers

Enhanced HMRC investigatory powers

Changes announced in last week's budget will label promoters of tax schemes who have been found guilty of defaults as 'monitored promoters' or 'high risk promoters'. The impact of such a designation is to give HMRC enhanced powers to obtain information from them during any investigation.

Notification of high risk status to investors

There may also be a requirement for 'monitored' or 'high risk' promoters to flag this increased risk status to investors/potential investors.

Payment of disputed tax sums at the start of an investigation

From a potential claims notification perspective, the most significant change is that clients whose tax affairs are being investigated may, in certain circumstances, be required to pay any disputed tax sums in full, at the start of an investigation, rather than when a final determination is made.

The circumstances where this applies are as follows:

• where the tax scheme should have been disclosed under the Disclosure of Tax Avoidance Scheme (DOTAS) rules; or
• is caught by the General Anti-Abuse Rule (GAAR); or
• where the tax scheme concerned has already been the subject of a tax tribunal case, which the HMRC has won. In these circumstances, where there is no appeal outstanding, HMRC may invite other investors to settle. If they do not, in addition to paying the disputed sum up-front, they risk an additional penalty.

HMRC are also being granted new powers to recover unpaid tax direct from taxpayers' bank accounts.

Increased Professional Indemnity claim notifications?

While the number of claims ultimately made may not increase significantly, taken together, these changes are, at the very least, likely to bring forward any claims clients may make against professional advisers (IFAs, Accountants and Solicitors) as their losses are crystalised at a much earlier stage.

Insurers, already wary of tax advice work, are likely to be looking very carefully at practices which have been involved in advising clients on complex tax mitigation schemes.

How Lockton can help

If you have concerns regarding your exposure to potential tax claims, speak to your Lockton broker now. We can evaluate the risk profile of your practice, help you address any significant risk issues, identify suitable markets to place your PII, and assist you make the best renewal presentation to those markets.

Calum MacLean was talking to Julian Miller, Partner at DAC Beachcroft LLP.