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16 Feb

Withers lead litigation against tax avoidance scheme promoters

Promoters of tax avoidance schemes are facing a group litigation action, brought by law firm Withers and LML, on behalf of professional footballers and other celebrities who lost millions when HM Revenue & Customs challenged the schemes.

The litigation alleges that clients were victims of mis-selling by advisors who specifically targeted young and financially inexperienced footballers. Several of these footballers, now retired, are being served with accelerated payment notices, requiring them to pay all the disputed tax to HM Revenue & Customs without the right of appeal. In film partnership cases, the investors not only have to pay income tax they thought to have avoided, but also on income received by the partnership under the licensing agreement, even though they never received any of this ‘income’. Some have been unable to raise the money and have declared themselves bankrupt.

Withers considers that there is a strong mis-selling case against advisors, because the schemes were of a kind that should only have been sold to ‘sophisticated’ investors as defined by the Financial Services and Markets Act 2000. Although some of the sports celebrities who joined the schemes certified that they were qualified to invest in them, Withers considers that they have good grounds for claiming that they were persuaded to self-certify, or had others do it for them.

Some disaffected clients have tried to challenge HMRC’s demands by defending the schemes in court, or by applying for judicial review of its procedures. Some have succeeded, but Withers’ Roberto Moruzzi believes that these victories are only a short-term solution, because HMRC will not allow avoidance schemes to continue.

Withers’ tax investigations special counsel Tessa Lorimer considers that the group action route is the best strategy for these clients to try and recover their losses. It also has the advantage that many schemes used similar arrangements and so several promoters can be sued at once, saving litigation costs.

Read the full article on the STEP website here.

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