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Law Firm Assembles Group To Sue Over Avoidance Schemes; Warns Over Delay Tactics
Tom Burroughes
15 February 2016
There is no time to lose for sports figures and other celebrities who fell afoul of tax avoidance schemes to sue those responsible for mis-selling them, law firm Withers says, as it pushes ahead with a class action case. “We have long expected a wave of litigation in this area and have identified that many high-profile celebrities, such as footballers, who have invested in schemes have a stronger case than most that they were miss-sold these schemes and, under the Financial Services and Markets Act, should never have been targeted by promoters, banks and financial intermediaries in the first place,” it said. The tax breaks available to investors in the film industry, developed by former UK finance minister Gordon Brown in the late 1990s, allowed investors to offset any losses created by investing in a film, should that investment fail. Advisors manipulated these tax breaks by leveraging the losses with circular finance and marketed them to the likes of young footballers and other people coming into large sums of money but lacking investment experience, Lorimer said. In the case of many such film schemes, there was no real intention of trading with a view to making a profit, and the creation of losses which were offset against the taxpayer's liability by way of sideways loss relief was the primary purpose at work, she said. Withers is putting together a group of aggrieved investors to fight a class action against promoters and advisors of such schemes, and is hoping to attract third-party financing for a lawsuit, but it will proceed with or without such financing, Roberto Moruzzi, litigation partner at Withers, said in the same interview. Sooner the better Investors have six years to bring a contract claim from the date of the cause of the loss arising. In relation to negligence claims, these can be brought within three years of the individual actually finding out about the loss, or three years from when they should have known about it. These two time limits may not be the same, but in either case, the time that new claims can be brought is running out.
Former top-flight footballers such as Rio Ferdinand, Andy Cole, Robbie Savage, Martin Keown and Danny Murphy are reported to have invested in schemes recommended by advisors, only for them to be hit as HM Revenue & Customs cracks down on artificial tax avoidance schemes.
Withers says that advisors accused of mis-selling schemes to clients may try and stonewall for months to delay when aggrieved investors can launch a case, potentially wrecking the chances of a class-action suit getting off the ground. Under the rules, claimants have a fixed period of time in which to launch any lawsuit.
In some cases, advisors encouraged people to put money into film funds with the aim of creating an artificial loss against which tax could be offset, in the knowledge that many such film schemes don’t make money. HMRC has ruled that unless there is an underlying economic rationale for an investment, such tax-advantaged schemes will be blocked.
The case highlights how the UK government has sought to crack down on forms of tax avoidance where there is no economic purpose to a scheme, although sometimes it is argued that the definitions are fuzzy and subject to interpretation.
The UK tax authority is considering contacting up to 33,000 people, and there are said to be up to 10,000 schemes being investigated. There may be many more which have not yet been investigated. If each investor put in between £20,000 to millions of pounds, then the amount in consideration is easily running into the billions, Withers told this publication recently.
“These investments should have only been sold to people who were sophisticated investors and even then, should have been given advice on suitability,” said Tessa Lorimer, special counsel in the firm’s tax investigations team. “It isn’t suitable for people such as young footballers.”
The sooner a case can be brought, the better, because there is a cut-off point for when claims can be brought. Some promotors/advisors are happy to engage in time-consuming wrangles with HMRC over such schemes because it may result in the time limit for litigation being reached, Moruzzi said.