Valuable advice for anyone considering introducing a client to a tax scheme. As brokers, we regularly hear clients say that they will never be held liable for claims in connection with tax schemes as they are ‘just the introducer’. However, we’ve seen examples of how exactly that can and does happen.
Essentially, some claimant solicitors can look for the easiest target – ie whoever has the funds (or the insurance) to pay the claim and a structure which will enable them to actually get to the money. Solicitors will be aware that all ACCA members must have insurance and that many have a relatively simple UK company structure.
On the other hand, there is no guarantee that promoters will have insurance. They can be experts at structuring themselves in complex group arrangements, often with a non-UK domicile, which may make it appear that they have limited assets that would be a challenge to get at. Therefore, even if solicitors choose to pursue a promoter and secure a judgement, enforcing it might be very difficult.
These reasons can make promoters undesirable to claim against. Ultimately, solicitors want results and potentially they can draw anyone and everyone who has any involvement in the matter into a claim. Each party that is named must then extricate themselves from it, however ludicrous it may appear to them.
However, is it possible for an accountant to look to pass all liability to a promoter? Many clients believe that this is a simple answer to the problem, but in order to do this, the accountant would need to establish that the promoter had been negligent.
There are four elements of a negligence claim, namely:
the promoter owed the accountant a duty of care
the promoter breached that duty of care
the breach of that duty caused the loss
the loss was not too remote to be connected to the breach (not too important for our purposes here.)
Firstly, let’s look at whether the promoter would owe the accountant a duty of care.
The accountant’s likely argument would be that they just introduced the claimant to the promoter – they had no intention to advise on the schemes and indeed gave no advice.
In order to demonstrate that a duty of care existed between the promoter and the accountant, they would need to prove that the accountant placed some reliance on what the promoter had said and acted on said reliance.
However, if the accountant states that they did not intend to give any advice, the promoter would have no reason to believe that they were being relied upon.
Alternatively, if the accountant is present as a tax adviser, the promoter would have reason to believe that they were being relied on. A tax adviser obviously seeks to advise their client and this advice would be informed by what the promoter had said. This may then give rise to a duty of care.
However, even this might not work to protect the accountant. A judge would be unlikely to allow a duty of care in this scenario, as to do so would absolve the accountant of their own duty to act with the reasonable level of skill and care.
Therefore, we can see that it is very difficult to argue that a promoter owes the accountant a duty of care.
Duty of care On a point of interest though, let’s say that we have managed to find a duty of care. The next step is then to determine whether the duty has been breached.
The duty of the promoter is to give honest and open warnings and advice about their scheme and its suitability for a particular client. Let’s take the following into account:
most promoters have strong and repetitive warnings in their literature about the risks involved in their scheme. Many also say that they are not giving tax advice and direct clients to their own tax advisers
if the promoter offers a counsel opinion on the benefits of the scheme, this helps the accountant by giving their confidence in the scheme some justification. Alternatively, the lesser the third party verification of the scheme, the greater burden is placed on the accountant to offer reasons behind their introduction and to ensure that their client’s interests are being protected
if the scheme has characteristics which the accountant should know will set off alarm bells with HMRC. The accountant should notice things like double-dipping and overseas investments
changes in legislation or attitudes. Whatever commentary promoters or other stakeholders make in a changing environment must be taken with a pinch of salt. No one can foresee the results of APNs on individual schemes, or even GAAR at this stage, so it is difficult to breach one’s duty of care when commenting, provided the comments are not unreasonable. For example, if the promoter is vague or unrealistic in their commentary, this triggers the accountant’s duty to scrutinise the situation. At the same time, if the promoter is honest about the uncertainty and the risks, the accountant must take this into consideration when introducing their client.
Therefore, provided that the promoter is honest and open about the risks of the scheme, in the context of that particular environment, then they may be unlikely to breach a duty of care, whether to the client or to another professional.
Now we turn finally to whether the promoter truly causes the loss. The crux of the matter is promoters are there to sell a particular scheme and use their expertise to put it in place with the client’s own assets. The responsibility of a promoter is to honestly depict the strengths, weaknesses, and primarily risks of their scheme, exercising the reasonable level of skill and care expected of a professional. Provided they do so, especially if in writing, they are likely to fulfil their obligations. They will not be liable purely by reason of being the promoter – they have to cause the loss, they have to be negligent.
When you place the accountant in between the promoter and the client, you introduce another link in the chain. A client will have no trouble in establishing a duty of care against the accountant as it is clearly anticipated by the very nature of their relationship. For example, if:
The accountant fails to set out the limitations of their role explicitly at the start of their relationship with the client, ie their letter of engagement was not sufficiently detailed.
The accountant fails to carry out their own independent due diligence on the schemes.
The accountant’s lack of expertise on the schemes means they cannot adequately advise on the scheme’s suitability.
The accountant will be expected to exercise the same level of reasonable skill and care as warranted from the promoter. If these failings occur, the client’s loss is likely to be more attributable to these than to the promoter’s existence.
if a promoter is included in the claim by a solicitor, and they haven’t openly presented the risks of their scheme, they are likely to take either all or some of the responsibility for the loss
however, if an accountant is also named, even just an introducer, and they have breached their duty of care to their client, they may either share in the promoter’s liability or possibly bear the full loss, dependent on the extent of their breach.
It can be very difficult to pass the liability from an accountant to a promoter because:
if the accountant doesn’t show reliance on the promoter’s advice, ie they state that they were just introducing, there is likely to be no duty of care between them
if the accountant is present in an active way, the need for them to carry out their own due diligence or exercise their own professional skill and care will likely result in the liability resting with them.
Consequently, unless we are dealing with a promoter who…
the claimant solicitor decides to claim against
has assets and/ or insurance, which are accessible in terms of where they are based or how they are structured
has failed to advise the claimant of the risks of their scheme
…an accountant who is also named in the claim is unlikely to escape even if they are only making the introduction. Amy Newton – account manager, Profin Specialities, Lockton Companies LLP firstname.lastname@example.org
Note: The above article is not to be regarded as advice (whether legal or otherwise) given by Lockton Companies LLP or the writer and cannot be relied upon by any reader of this article. By reading the article you agree that Lockton has no liability to you or any other party in relation to the same. If you have any concerns or queries about the subject matter of this article then please seek your own independent legal advice on the same.
Lockton Companies LLP is ACCA’s recommended broker for Professional Indemnity insurance. For information, please contact Lockton on 0117 906 5057.