How much reliance can you place on your tax adviser, asks Mala Kapacee
Reliance on an accountant or tax adviser is a controversial topic, particularly in relation to tax avoidance arrangements and where a client is issued with penalties for inaccurate return. Taxpayers invariably believe that appointing an adviser is sufficient for asserting they had taken reasonable care. Indeed, many business owners see this as a way of ‘outsourcing’ the work, perhaps not realising that this is not the same as outsourcing the responsibility for correct tax returns.
Those who used tax avoidance arrangements will have in the vast majority of case relied on opinions provided by Barristers and will be wondering if that can be used as a defence against penalties.
David McClean & Ors v Andrew Thornhill QC
Earlier this year, Andrew Thornhill QC was sued by the users of tax avoidance schemes on the basis that he had reviewed various tax avoidance arrangements and stated they would confer a tax advantage because the entities within the arrangements would be carrying on a trade on a commercial basis and with a view to profit. HMRC has now refused the tax reliefs and offered a settlement to users of the arrangements on this basis.
The court reviewing the case stated that Mr Thornhill “did not owe any duty of care to the schemes’ investors”. The full decision can be read here.
The basis of the decision was that Mr Thornhill was instructed by Scotts, promoters of the schemes, to advise on the tax implications of the arrangements. He was never instructed by any of the claimants and in signing the agreement to invest, the taxpayers had also confirmed that “it was, and is, my responsibility to obtain appropriate advice, recommendations and assessment, as referred to above, from an independent financial adviser or other suitably qualified person”. This means that the investors who relied on Mr Thornhill’s analysis on the basis that he was Scotts’ adviser are now realising almost 20 years on that they were not entitled to do so.
One of the points the judge made was that the investors were business people and they had a certain level of knowledge in relation to finance and tax. They were not solely reliant on the advice from Mr Thornhill. We cannot say whether the judge’s decision would have been different had the investors been (for example) laypeople or whether this was simply mentioned to support his decision.
The result unfortunately supports HMRC’s case that taxpayers cannot be said to have taken reasonable care if they didn’t take separate advice, addressed directly to the taxpayer and which was specific to the taxpayer’s own affairs. Unfortunately, this also raises the question of when taxpayers should be aware of when the advice or opinion they are relying on is or is not sufficient. This is ironic considering people tend to rely on advice from a professional when they are not sure what the position is in the first place! How one is meant to identify – based on little to no understanding of the issues at hand – whether the advice is correct or dependable is confusing at best.
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