November 2023 - Elysium Law

FAQS FOR SPOTLIGHT 63 VICTIMS (LT4L, BAILEY GROUP)

Posted on 29 Nov 202304 Apr 2024 by Ruby Keeler-Williams

Elysium Law have been approached by a number of individuals and professional advisers about what is rapidly becoming a serious issue for those who entered planning with Less Tax For Landlords and Bailey Group.

In response to the mounting questions surrounding this issue, we’ve crafted this Frequently Asked Questions (FAQ) article, accompanied by our suggested answers.

Who are Elysium Law?

We’re a BSB Regulated Entity as a Direct Access Barrister firm with litigation privileges, which means that we can do the same work as a regular law firm but with the prestige and expertise of Barrister working directly on your matter, day to day.

We have successfully represented hundreds of people individually and in large groups in complex and high value group litigation. We are here to help, so please get in touch with us if you’re worried about either of the above matters.

Are there any fees associated with initially getting in touch?

No. At this stage we are inviting potential victims of planning following HMRC’s Spotlight 63 to have an initial consultation with us where we’ll conduct a fact find and discuss the group litigation.

Following this, we’ll register your interest in the group litigation so we can keep you updated regarding our pursuit of the potential claims.

It is important that you appoint a professional tax advisor alongside pursuing any litigation. We are currently working alongside professional advisors.

Will HMRC know I have contacted you?

No. You are entitled to seek advice and we are qualified professional legal advisors and you have legal privilege in all our discussions with you. This means in simple terms that we cannot disclose anything discussed between us without your permission if the communication is kept confidential (apart from if a criminal activity is disclosed).

We’ll advise you further about legal privilege as part of the litigation.

What claims are you looking at?

We’re currently looking at claims in Breach of Contract and Professional Negligence in relation to the planning provided by firms Less Tax For Landlords and the Bailey Group.

Why should I get legal representation sooner rather than later?

There are legal limits as to when a claim can be made, known as limitation.

In Breach of Contract claims, it is 6 years from the date the contract (letter of engagement) was signed.

In Professional Negligence claims, it is 6 years from the date the loss arose. The date of loss will be different depending on the scheme you entered into. Examples here may include the of the tax return was submitted or the date when any tax liability arose.

We must progress through the pre-action protocols before we can issue a claim and ‘stop the clock’ on limitation. It is vital that there is sufficient time to fully assess the matter, fully advise you, issue a letter of claim on your behalf, allow 3 months for the other side to respond, deal with any letter of response and seek any pre-action disclosure necessary.

Additionally, you will need to mitigate (lessen) your loss, which in this case means settling with HMRC and reaching a tax compliant position. HMRC are aware of the planning and have issued Spotlight 63 and ‘One Too Many’ letters to notify taxpayers. You will need to appoint a professional advisor to liaise with HMRC and settle the matter, which will take time.

Is doing nothing an option if you have not received an HMRC nudge letter?

No . Registration with HMRC should be undertaken.

However we suggest that before doing so, you obtain advice from an experienced regulated tax advisory firm, who will assist you in regularising your tax affairs by advising you on the different tax payable, minimising interest and penalties if applicable and will help mitigate your losses in any claim we can assist with. Our advice is to get expert professional tax advice and subject to that advice attempt to settle with HMRC.

Why is it important to mitigate your loss

The rule of mitigation requires a claimant to take steps to minimise its loss and to avoid taking unreasonable steps that increase its loss. Whether arising from a breach of contract or breach of duty, the injured party cannot claim damages for losses that could have been prevented through reasonable measures.

Here, it will be essential to work in tandem with experienced professional advisors who can settle claims with HMRC. This will assist us in calculating your losses and allow us to prove that you acted swiftly and responsibly.

What damages will you be seeking?

The damages will be carefully assessed for each client, but we anticipate claims including:

The Fees paid for implementing the planning
Tax Liabilities (potentially including CGT and SDLT)
Any loss relating to mortgage default due to the planning
Fees of any professional advisors to settle with HMRC and reach a tax complaint position
Accountancy fees regarding the two entities, cessations accounts
Legal Costs

What documents will be important?

We would like to see all documentation, but we’re specifically interested in these documents:

The Engagement Letter: The engagement letter is the contractual obligations of the advisor and we need to look at what they have expressly promised to do.

The Tax Advice: You should have been given solid advice that contain risk warnings. In some cases we are aware of, no advice was given. We will look at the content of the advice to see if it is legally sound and look for the risks warning which you should be made aware of. The absence of the latter will indicate whether there is a potential causation issue depending upon the strength of the warning.

Any Scheme Documentation: We need to see how the scheme has been implemented to see if it is technically correct. This includes any partnership documentation, any deeds of trust, any deeds of transfer, etc

Does it matter whether I have fully implemented the planning?

In a matter such as this, there will likely be different ‘classes’ of Claimant depending on the loss suffered.

This will likely be determined by how much of the planning has been implemented at each stage.

Currently, we envisage the following scenarios:

a. Claimants who have paid fees but not implemented the planning;

b. Claimants who have partially implemented the planning

c. Claimants who have fully implemented the planning

How can I contact you?

You can contact us via telephone or email for a free initial consultation.

Elysium Law has an outstanding track record of bringing, defending and settling high-value and complex cases. With hundreds or even thousands likely affected following Spotlight 63, we are looking to advance a group claim. Contact us today for more information

Legal Insights: A Litigation Overview following Spotlight 63

Posted on 16 Nov 202304 Apr 2024 by Ruby Keeler-Williams

In this article, Ruby Keeler-Williams and Richard Gray of Elysium Law provide an overview of the legal action which can potentially be brought against LT4L and the companies involved within the structure – which is now the subject of HMRC Spotlight 63.

In this article, we’ll give an overview of aspects of the anticipated litigation against scheme providers following HMRC Spotlight 63, with specific regards to various issues that will arise in any claim for Negligence, Breach of Contract and Misrepresentation.

Contractual Position

A professional adviser will enter into a retainer or contract with the client(s) they engage with. The scope of the duties is defined by the retainer letter. A contract contains both express and implied terms. An express term for example, would be the fees paid to enter the ‘planning’. Legally this is known as the consideration and in any breach of contract claim, the claim would naturally include a claim for a return of the fees. An implied term of the contract would be to carry out the contractual duties as expressed by the retainer in accordance with the standards expected of a reasonably competent professional within that field.

Professional Negligence

Given that the duty of care is owed by a professional advisor, there would also be a claim in Professional Negligence. Whilst the formulation of damages claimed are normally different in negligence and breach of contract, in cases such as these, where the loss amounts to professional fees and tax liabilities, it would effectively be the same.

Whilst negligence can be defined as a Breach of Duty of Care owed to the Claimant, which causes Loss and Damage to the Claimant, the position is far from simple.

Causation

In bringing a claim in negligence, the elements of causation is a question of fact. A number of elements will be considered by the court which are evidence-based.

For example, if a person has attended a sales fair, has taken a brochure and having read the brochure signs up to the scheme without further discussion or asking questions, the Defendant (who will act by their insurance company solicitors) will claim that the Claimant would have entered into the scheme in any event.

Items promised such as less tax to pay, redistribution of income, business property relief on shares at the specific time, are powerful inducements and the court may view that causation is either not proved, or alternatively that the loss has been contributed to by the negligence of the Claimant themselves (known as Contributory Negligence). Contributory Negligence will reduce the degree of damages which otherwise would have then awarded in proportion to the Contributory Negligence demonstrated by the Claimant.

The insurer’s riposte to any claim will almost certainly be one of causation, asserting that the Claimant would have entered the scheme regardless of what they were told. Items such as the evidence required to prove or disprove the assertion is beyond this article. This is a process which requires full engagement with any would-be litigant who wishes to bring the claim.

Professional Indemnity Insurance

Professional Indemnity (PI) Insurance is a type of insurance designed to protect professionals (such as lawyers, tax advisors, accountants, etc.) from financial losses resulting from legal claims made by third parties. These claims typically arise due to alleged negligence or errors and omissions in the professional services provided by the insured or their employees.

Any claims made will be dealt with under LT4L’s PI policy.

A point to concern for litigators is that irrespective of the strength of the claim, any claim of fraud will invalidate the policy. We have seen cases (in which we were not involved) where the lawyers pleaded fraud and immediately the policy was withdrawn.

In any event, fraud has a very high benchmark and ought not to be pleaded unless there is specific evidence which can be proved on the criminal standard of proof (beyond reasonable doubt). This will not apply this claim and if you are advised that this is a fraud by any other party, then we would reject that assertion.

The Insurance Policy

Elysium Law had been approached by a number of individuals or couples, some of whom have sought a copy of Less Tax 4 Landlords’ insurance policy.

Less Tax 4 Landlords are part of the One Consultancy Group, which includes an accounting firm (OCG Accountants), a mortgage broker (OCG Mortgages), an FCA regulated financial services firm (Phare Financial Services) and an SRA regulated ABS (OCG Legal).

We have had sight of the Professional Indemnity Insurance Schedules for Less Tax 4 Landlords, OCG Accountants and OCG Legal. The Professional Indemnity Insurance Schedules only contain the main limits, sums insured, endorsements and excesses but others will apply and will be detailed in the Policy Document, which we have not had sight of.

It must be noted that when a professional adviser ceases to practice, there must be what is known as run-off cover covering the six-year period after the cessation of the practice.

The Limit of Indemnity

The amount of cover provided under a PI policy is determined by the limit of indemnity. This will usually be set out in the schedule to the policy. The limit may be expressed to be on a “per claim” or “per loss” basis or on an “aggregate” basis or both:

”per claim” or “per loss” means that the limit will be available for each and every claim or loss as applicable.
”in the aggregate” means the limit of indemnity will be available for all claims that fall for cover in that policy period.

It is common to see limits expressed to be both on a “per claim” basis and in the aggregate.

For example, if the limit of indemnity was expressed to be “£100,000 each and every Claim and £1 million in the aggregate”, this would mean there was a maximum limit of £100,000 available for each Claim (as defined under the policy) but insurers would pay no more than £1 million in total for all of the Claims covered under the policy.

In the Professional Indemnity Insurance Schedules for Less Tax 4 Landlords, OCG Accountants and OCG Legal (which are an overview and do not reflect the terms of the entire policy) the limit of indemnity is £2 million for Less Tax 4 Landlords, £2 million for OCG Accountants and £3 million for OCG Legal. We have not had sight of the complete policy and as such cannot comment specifically as to whether this is per claim or on an aggregate basis.

Aggregation Clauses

It is common in a PI policy for there to be an aggregation provision. Such a provision provides for two or more separate claims covered by the policy to be treated as one claim when they have a unifying common factor that links them together.

This is of considerable importance because it is likely that claims in respect of LT4L that arise from the same cause of action will be aggregated, meaning that despite the number of individuals who seek compensation, they will all be classed as one claim.

Clearly, if there were 600 Claimants all seeking £20,000 each, the total claim would be £12 million, which is significantly above the limit of indemnity. In order to minimise their losses, insurers make provision for an aggregation clause which means that they avoid claim such as this.

Experience tells us that LT4L will have a policy with an aggregation clause in it. As yet, we are yet to determine every companies or individuals who have provided planning within the arena to this particular DoTAS scheme. It may be that the accountants and the solicitors concerned will each be liable for their part in the provision and implementation of the scheme and therefore, there would be two policies to attack by this litigation.

As far as challenging the aggregation clause, the position will be dependent on the specific wording of the clause and as such at this stage is not clear and cannot be the subject of accurate comment. Generally, the principles are as follows:

It is crucial to look at the words used in the aggregation provision including whether any of the words used are defined terms. Provisions which seek to unify claims by reference to the same ‘act’, ‘error’, ‘omission’ or ‘event’ have a narrow scope and tend to result in fewer aggregated claims (Lloyds TSB General Insurance Holdings Ltd v Lloyds Bank Group Insurance Co Ltd [2003] UKHL 48)

In contrast, provisions which allow for a wider search for a unifying factor such as the same ‘originating cause or source’ are likely to mean more claims can be aggregated together (Axa Reinsurance (UK) Plc v Field [1996] 2 Lloyd’s Rep 223 )

In AIG Ltd v Woodman and others [2017] UKSC 18, the Court held that in order for claims to be aggregated, they must have a unifying factor, such as a common feature, circumstance, or cause.

This was expanded upon in Baines v Dixon Coles and Gill (A Firm) and others [2020] EWHC 2809, in which insurers sought to aggregate claims relating to the theft of client monies by a partner of a firm.

HHJ Saffman provided the following example at paragraph 53 of the Judgment:

“In other words if there is a series of acts A, B and C, it is not enough that act A causes claim A, act B causes claim B and act C causes claim C. What is required is that claim A is caused by the series of acts A, B and C; claim B is also caused by the same series of acts; and claim C too.”

An example of claims being deemed to have the same ‘source or originating cause’ can be seen in Spire Healthcare Ltd v Royal & Sun Alliance Insurance [2022] EWCA Civ 17, where the Court of Appeal held that several claims against the insured all arose out of the same “source or original cause”, namely, the conduct of an individual in disregarding the welfare of his patients and performing operations on them without their informed consent. The claims could, therefore, be aggregated as one claim so that the £10 million policy limit applied, instead of the aggregate policy limit of £20 million. This decision confirms that the negligent or dishonest acts of one individual can be an originating cause for the purpose of an aggregation clause, even though their negligence may take different or multiple forms.

Damages

These will depend upon the specific taxes to be collected by HMRC.

As yet, whilst HMRC have written to people telling them to register if affected by the scheme, there has been no expression of policy with regards taxes they wish to look at collecting. Again, this will be discussed no doubt with the expert selected to liaise with HMRC in any settlement.

Mitigation of Losses

It is important that you demonstrate in any claim that you have tried to mitigate any losses incurred. This should be done via an expert. Damages may be only extra income Tax, interest and penalties for example. If you have been affected, you should seek to instruct a litigator who will compile a schedule of damages each Claimant has incurred.

You will also claim extra accounting fees for the entities involved, your experts fees and of course the consideration (fee) paid to LT4L. These will be set out in a Schedule of Loss and it is more cost effective and easier to mount a claim of significance. In other cases, we have seen individuals taking on the insurance company alone and given the costs of such litigation, their claims have been ignored simply upon the basis that the Claimant cannot afford the costs.

Conclusion

If you find yourself impacted by the issues discussed, Elysium Law are ready to offer expert guidance and assistance. Please contact us today.

Exiting Tax Avoidance Schemes following HMRC’s Spotlight 63

Posted on 14 Nov 202304 Apr 2024 by Richard Gray

In this article, Richard Gray and Ruby Keeler-Williams of Elysium Law provide practical guidance for individuals navigating the exit process from tax planning schemes, notably those promoted by Less Tax For Landlords.

Let us start by thanking the CIOT for publishing the letter which is being sent by HMRC following Spotlight 63. This communication sheds light on the potential fallout from the tax planning schemes orchestrated by Less Tax For Landlords (LT4L) and other promoters.

To see this, you can access the article containing the posted letter on the CIOT website: HMRC One to Many letters concerning ‘Spotlight 63’ LLP property tax planning

Elysium Law have been approached by numerous victims of this particular mess and are looking at bringing claims in professional negligence, amongst other causes of action, against the perpetrators. Note, there are in fact a few providers presently in our sights.

One issue that we raised with the professional advisors with whom we work is the policy HMRC are adopting in relation to the recovery of the many specific tax liabilities this scheme will cause.

Following these discussions, we’ve put together this short practical guide for those affected.

Exit

Exiting a tax planning scheme such as those implemented by LT4L demands careful consideration and strategic planning, especially in the aftermath of HMRC’s Spotlight 63.

Reassessing the Declaration of Trust

The first crucial step in the exit strategy involves evaluating the effectiveness of the declaration of trust over the beneficial ownership of properties within the LLP. If deemed necessary, a change may be required to shift the beneficial interest back to the individual(s). However, it is essential to note that there are significant considerations in this regard, which we will address shortly.

Income Declaration and Section 24 Implications

Once the beneficial ownership is realigned, landlords must declare the income and expenses on the properties as they did before. This reinstatement to individual ownership brings Section 24 of the Finance Act 2015 into focus, particularly impacting the calculation of taxable profits for those with mortgages.

Liquidation of the LLP and Limited Company

In certain scenarios, the LLP and Limited Company member may need to be liquidated, but exercising caution is paramount. This step should only be taken post-settlement to avoid potential complications.

Potential Pitfalls of the ‘Transfer Back’

One of the critical issues in the ‘transfer back’ process involves the change in the corporate member’s entitlement to profits. The looming question is whether HMRC would perceive this transfer as triggering SDLT or CGT charges. While we remain hopeful that it wouldn’t, seeking professional advice before taking any action is essential. Waiting for HMRC’s confirmation or agreement on any arguments presented is equally crucial.

Filing Returns: Exercise Caution and Transparency

For those compelled to file returns before HMRC confirms their stance, it is advised to base your position on professional advice. Full transparency in filing, accompanied by a clear rationale for the chosen position, is vital. Acknowledge the possibility of amendments and be prepared to provide evidence if HMRC disagrees, as filing without proper advice poses the risk of penalties and additional taxes.

Settlement

Mixed Membership and Reallocation

In addressing the mixed membership issue, it is anticipated that HMRC may seek to reallocate profits back to individual members. Moreover, there’s a possibility that HMRC might go a step further and consider ignoring the LLP structure entirely, leading to the computation of tax on the individual(s) based on a ‘normal’ basis.

Corporate Income Tax Offset in Settlement

For corporates that have previously paid income tax on profits, there is a potential avenue to offset or include this in an overpayment claim. This can effectively reduce the ‘cash’ cost of settlement, subject to time limits. Similarly, income tax paid by individuals on dividends from the corporate may be repayable, further alleviating the financial impact of settlement.

Inheritance Tax Implications

While we hope that no participants in these arrangements have passed away, considerations must be made. If Business Property Relief has been claimed for Inheritance Tax (IHT), and it is deemed ineffective, HMRC would expect necessary amendments.

CGT and SDLT Liabilities

The transaction and reallocation of profits may have triggered liabilities in terms of Capital Gains Tax (CGT) and Stamp Duty Land Tax (SDLT). HMRC’s perception of the effectiveness of these events will determine the course of settlement. There’s a possibility (albeit a significant one) that HMRC may choose to ignore these issues. If not, computation and payment of SDLT and CGT become necessary, requiring careful consideration of available reliefs.

HMRC Registration and Policy Pause

While HMRC advises victims of this scheme to register, responsible professionals should encourage compliance. However, we recommend pausing a moment. As of now, HMRC has not disclosed its policy on these matters, making it crucial to stay informed and navigate the registration process with a clear understanding of potential implications.

Next Steps

In the initial phase, Elysium Law strongly advises seeking assistance from a professional adviser. Rushing into decisions without expert guidance may inadvertently lead to the creation of further tax liabilities. A professional adviser can provide invaluable insights, helping you make informed choices tailored to your unique circumstances.

It is highly likely that discussions with HMRC will be necessary to navigate the complexities of settlement and exit. Achieving a clear understanding of the precise terms for both settlement and exit is crucial. This ensures that you can leverage the benefit of any tax already paid, contributing to a smoother resolution of the situation.

Should you find yourself impacted by the aftermath of LT4L and the tax planning issues discussed in this article, Elysium Law is here to offer guidance and assistance. We recognise the complexity of the situation and the potential legal challenges involved, and our team stands ready to advise. Contact us today for advice on your personal circumstances.