Even before I reached the heights of silk, I never knowingly missed an opportunity to be sententious: “Risk,” I once observed, “rolls downhill and falls on the little man.”
I was talking, there, of the fact that the mechanisms that transfer the risk of failure of tax schemes from those who enter into them (taxpayers) to those who benefit from them (advisers) are too weak. And I was reminded of that today, as other days, when the FT reported on another push for fees by advisers, this time fees for suing the first lot of advisers, those who put taxpayers into tax avoidance schemes in the first place.
I’ve been pondering on this a lot recently.
The mystery for me is this. Here you are – someone intelligent enough to have earned enough money to be attractive to scheme promoters – but you don’t demonstrate sentience about the likely existence of the golden fruits of the magical tax saving tree. (I know of someone – highly financially sophisticated – who put £2m into a scheme on the back of a cold call.) But the tree hasn’t borne golden fruit and now you’re facing ruinous claims from the taxman. Then along comes someone else – offering qualitatively the same magical fruit as first time round – and you make the same mistake all over again.
Cases against the first class of vendors of golden fruit are difficult to win. I am only aware of one case against scheme promoters. Although the judgment delivers 1,439 paragraphs of crushing blows to the claimants’ case, it can perhaps be boiled down to what the judge says in his 1,437th:
Although the Claimants were understandably aggrieved to lose their cash contributions and receive back only limited tax relief, there are obvious risks in going into aggressive tax schemes which offer the prospect of almost immediately doubling your money.
It is, however, fair to say that a case against the professional who advised you could be easier. But not much.
Many equivalent points might be made about a further group of advisers, often ex-Inspectors of Taxes, who promise privileged access to settlement deals with HMRC because of the relationships they enjoy with their old colleagues. HMRC are bound to, and rigorously do, comply with their Litigation and Settlement Strategy. There is no privileged access.
My father, a man with an aphorism for every occasion (a fact enjoyed by his immediate family every bit as much as you might think), is wont to observe:
Each flea has on his back
Another fee to bite him
And on that flea another flea
And so on infinitum
Michael O’Connor, who tweets as @StrongerinNos (follow him), rendered literal that metaphor this morning
So if you have lost out in a tax scheme – and many who have merit genuine sympathy – please exercise care.
(I am grateful to Heather Self for pointing out a case in which an adviser has been successfully sued).
Waiting for Godot 
The notion that a defector from HMRC (I speak as one) could call in favours from those who stayed true to the public sector calling should be so obviously suspect that only a credulous person could fall for it. Did Captain Scarlet have a co-operative relationship with Captain Black. No; and why should they?
The paramount consideration is this: greed is the surest root of ruin, both for the avoider and the promoter. Why should a court give preference to one greedy person over another greedy person. If you are greedy nobody sympathises. That applies as much to government/ HMRC as to tax payers and their advisers, by the way.
The exotic names given to the schemes should themselves serve as an alarm bell. For example, when advised to become involved in the ‘Turkish delight’ or ‘platinum sponge’ schemes one might expect an intelligent person to be circumspect. Having said that I know of at least one decent settlement that was reached against advisers in such a case.
A scheme by which promoter, can you say?
Reading your blog on this subject I immediately recalled the case of Jarndyce and Jarndyce in Charles Dicken’s ‘Bleak House’. By the time the case was closed, the legal fees had consumed the estate that had been bequeathed.
A different area of law, but the same sort of phenomenon?
In terms of greed led by the nose, can I recommend the books by Satyajit Das about the inner workings of the financial sector – interest rate swaps for example.
As I have said before, in some cases, the people who put taxpayers into such schemes are now the ones advocating a claim. If there are some who believe they can “sell” to the same people twice then I doubt the risks (of investing or making a claim) are being explained properly. Whilst that may suggest that action should be taken against advisers (as suggested recently) I think a better approach would be for those advisers who do not advocate such schemes to educate people on the risks and why they believe a scheme may fail. Simply saying a tax avoidance scheme is “morally wrong” is not sufficient.
I agree entirely
“Many equivalent points might be made about a further group of advisers, often ex-Inspectors of Taxes, who promise privileged access to settlement deals with HMRC because of the relationships they enjoy with their old colleagues.”
As an ex-Inspector of Tax myself, I’m appalled. Who are these people claiming this? Surely they’d never go into print claiming such things?
Another case against the advisor http://www.step.org/tax-planning-advisors-prepare-claims-disgruntled-clients
Albeit via the FO