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Caution ahead for tax avoidance schemes

Jim Oulton of Mayer Brown considers the position of a number of tax avoidance schemes.

The legitimacy of tax avoidance schemes has come under increasing scrutiny.  In addition to debate in the press, HMRC has also enjoyed recent success in challenging claims for tax relief (for example, the refusal of tax relief to investors in the Eclipse 35 film investment partnership).  This environment makes it likely that clients of tax professionals will be concerned about tax planning advice they have received.   

If clients raise queries about previous advice, tax professionals should be cautious about providing swift, off the cuff, reassurances.  Such requests need to be considered carefully, taking account of changes in law and HMRC's position.

If previous advice is considered questionable, the adviser's primary concern should be to ensure they have sufficient objectivity to comment upon it.  Otherwise, the adviser risks creating further problems, particularly if additional advice is given notwithstanding a conflict of interests between adviser and client.

Tax professionals should always be alive to the possibility of a client's initial concerns developing into a complaint or claim, and ensure they do not prejudice their position beforehand.  Advisers must, at all times, be mindful of their obligations to their professional indemnity insurers.  Many policies will require professionals to report to Insurers any circumstances which may give rise to a claim, as well as claims.  

Advisers often try to address a potential problem themselves, and create documents which subsequently prove harmful when a claim arises; this can be avoided.  Early input from Insurers and legal advisers can help to ensure that any complaint or claim is properly handled. 

Consideration can be given to establishing a privilegedenvironment, where advice can be taken on problematic issues without fear of privileged documentation having to be produced in subsequent litigation.  All relevant documentation can also be preserved, to ensure that issues will be addressed in the light of full information.

With aggressive tax planning coming under attack, clients will want to ensure they can continue to enjoy their desired tax relief – and if they cannot, they may question why advice they have previously received no longer holds good and may sue if they have suffered tax or penalties as a consequence.  In this environment it is therefore essential that tax advisers take proper steps to protect themselves.

By Jim Oulton of Mayer Brown

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