Dispute Resolution Update – High Court claim regarding a Remuneration Trust

I have acted on numerous disputes on behalf of individuals and companies who have entered into Remuneration Trusts of one form or another.

The cases broadly follow a similar pattern:

1. IFA or Accountant recommends a Remuneration Trust scheme (or Contractor Scheme) to their client who, on the back of that advice, signs up to that particular scheme through them.  The advice given is below the standard required of the professional and as a result he has acted negligently.
2. IFA or Accountant advises their client to enter into a Remuneration Trust scheme (or Contractor Scheme), but that to enter into the scheme, their client needs to engage with a third party who will prepare the necessary paperwork.  The professional adviser advises their client that the scheme is suitable for them.  The advice given is below the standard required of the professional and as a result he has acted negligently.
3. In both instances, the professional has received an undisclosed commission, usually received from the Promoter or a professional “higher up the chain”.  It is similarly a common theme that the professional claims to have a particular specialism in the tax affairs of a particular profession – lawyers and doctors for example.

I recently settled multi-million pound case which fell into category 2.  The details were as follows:

My client was a healthcare professional.  He had been with the same accountant for 20+ years.  That accountant was his trusted advisor and had advised him about his tax affairs for that entire period.  From circa 2005 onwards, the accountant began to recommend particular tax avoidance schemes – culminating with advice to enter into a remuneration trust in 2012.

The accountant had always claimed a specialism in the tax affairs of my client’s particular profession.  In terms of the Remuneration Trust that he recommended to my client, he stated that he had entered into a similar trust, and therefore he knew that the scheme was suitable for my client.  There was no analysis of the merits of the scheme, or its risks, nor an analysis of the costs vs the benefits of the scheme.

There was also no mention of the accountant taking a percentage of the fees that were being paid by my client, by way of commission for my client’s introduction, notwithstanding that the ICAEW rules make it clear that this is not permitted unless that commission is fully disclosed.

The Remuneration Trust itself was a self-employed Remuneration Trust (SERT).  My client would pay the profit from his earnings into an offshore, Belize, trust, then a loan was made from the trust to my client amounting to 90% of the sum paid to the trust.  It was understood that it was a non-recourse loan.  My client would then pay an annual trustee fee.

My client paid into his SERT over a period of circa 4 years.

After a period of around 4 years, my client received a letter from HMRC that his SERT did not work and, as a result, he was liable to pay the unpaid tax, plus penalties (ultimately assessed at 17%) and interest.  Latterly, he was then told that the outstanding loans would be subject to the Loan Charge.  As a result, he agreed with HMRC to voluntarily settle his tax affairs with them.

Expert advice was taken both in relation to the merits of the advice given by the accountant as well as whether the RT could operate to avoid the tax which HMRC were claiming was due.

The accountant disputed the case put forward by my client.  Accordingly, a High Court claim was issued against the accountant (as an individual and the firm itself), the promoter and related parties.  The professional indemnity insurers for the accountant were then engaged.

The basis of the defence put forward was, in summary, that he and his business had not advised in the manner alleged.  The difficulty for the accountant was that the documentary evidence did not assist his case.

It is worth noting that that the claim was issued shortly before the 6^th anniversary of the date that my client began discussing the possibility of entering into an RT with his accountant.  The reason that this is important is that to bring a claim in contract or in negligence, a claim must be entered into within 6 years of the relevant date.  What the precise “relevant date” is can vary.  Potential claimants should not delay in contacting lawyers if the clock is ticking.

After many months of analysing the issues in the case and narrowing the issues in dispute, the parties agreed to mediate.  After a 12 hour mediation the defendant agreed to pay a substantial sum to my client.

If you have a claim or potential claim regarding an RT, SERT, Contractor Scheme or any other tax avoidance scheme, please contact me or one of the team who will be able to assist.

I should like to stress that each case, in litigation, turns on its facts.  The fact that the advice regarding this Remuneration Trust was not suitable does not mean that all advice given regarding RT’s is negligent.  If you are considering taking action in respect of the advice given, expert input is required to analyse the merits of that advice.  Similarly, I am not saying or advocating settling with HMRC regarding any RT that you are engaged in – I make no comment on that save that specialist advice from a tax advisor should be taken.

Disclaimer: this article is not to be relied upon as legal or tax advice. The circumstances of each case differ and legal advice specific to the individual case should always be sought.