Tax Advice Under Scrutiny: Halsall V Champion Consulting

Introduction

As the government continues to grapple with a budget deficit and strained public finances, there remains considerable pressure on HMRC to crack-down not only on tax evasion, which is illegal, but tax avoidance, which HMRC refers to as "bending the rules of the tax system to gain a tax advantage that Parliament never intended"1. Scrutiny of tax avoidance schemes is not new, but measures introduced by parliament in recent years (together with a shift in the attitude of the Courts in favour of HMRC, and tighter HMRC guidance) have created a much tougher environment for taxpayers. These measures include the Disclosure of Tax Avoidance Scheme ("DOTAS") regime (since 2004), the General Anti-Avoidance Rule (since 2013), and Follower Notices and Accelerated Payment Notices which require a taxpayer to make an accelerated payment of tax they wish to dispute (since 2013/4).

The net impact has been significant. There have been substantially fewer new tax avoidance schemes being mass-marketed, and many firms have closed their tax scheme units. There has also been greater focus on the legitimacy of historic schemes which has only been heightened by public attention including following the release of the so-called "Panama Papers". In the March Financial Statement this year, the Chancellor announced that: "since 2010, we have secured £140 billion in additional tax revenue by taking robust action to tackle avoidance, evasion, and non-compliance"2. Where individuals and corporates face financial and reputational issues in respect of challenged tax planning, it is predictable that some may seek to point the finger at their professional advisers.

We expect to continue to see run-off claims against advisers for historic tax advice. Given that taxpayers may need to wait years for HMRC to work through a backlog of tax returns and finalise the outcome of any subsequent enquiries or action, limitation issues are likely to be relevant to many claims. In one such case earlier this year - Halsall & Ors v Champion Consulting Limited & Ors 3 - the Mercantile Court concluded that the tax adviser was negligent by acting as no reasonable tax adviser could have acted, but it escaped liability on limitation grounds.

Halsall

The Claimants were four solicitors who were said to have been negligently induced into two tax avoidance schemes by the Defendant accountants ("Champion").

The "charity shell scheme" sought to take advantage of tax relief available on donations to charities through Gift Aid. The Claimants subscribed for shares in a shell company, which then acquired a target company before the shell company was listed on the stock exchange. At that point, the Claimants gifted the shares to a charity and sought tax relief on the value of the gift (effectively the list price of the shares). As tax relief would be available at the investors' marginal rate of tax, in order for the tax relief...