New powers which will be introduced via the Finance Act 2014 are leading to investors in tax schemes crystallising their tax losses much sooner than anticipated.
Yesterday, news broke that celebrity investors in the £1.2 billion Liberty tax avoidance scheme faced significant losses as HMRC issues accelerated payment notices requiring payment of tax pending its court challenge against the scheme in March 2015. Today, it was reported that the use of accelerated payment notices in relation to on-going film finance litigation could lead to a 'tsunami' of claims by investors to recover losses from a £5 billion tax bill.
The notices operate as a formal tax demand which means that there are penalties if payment is not made within 90 days, even if investors prevail against HMRC in court and the tax is subsequently refunded. Our tax team's analysis of the impact of follower notices and accelerated payment notices can be found in this client alert.
Although at first glance these stories are worrying news for the financial adviser community and their insurers, we believe that forecasts of a 'tsunami' are overstated. The claims we have seen are indiscriminate and claimants seem unable to distinguish the different roles played by scheme operators, advisers and promoters.
Unlike with other 'claim tsunamis' such as PPI, it is clear that the political winds are not with this latest wave. The director-general of business tax at HM Revenue & Customs, Jim Harra, is quoted as saying he has "no sympathy for these people. Let's not pretend that the people taking up such schemes are the hardworking honest majority." Although the courts are independent from the political establishment, there is likely to be much less pressure from the public and the FCA to settle these claims early.