Julia Norris, partner at FS Legal
Altrincham-based tax negligence firm, FS Legal is seeking action for thousands of owner-managed businesses who’ve been caught up in a tax avoidance scam after being mis-sold advice.
The scheme referred to as “E Shares”, or sometimes “F Shares”, “P Shares” or “partly paid shares” was promoted by Blackstar (Europe) Limited and involves a business allotting shares to an individual employee who would only pay 1% of the share’s face value, purportedly allowing the employee to extract large sums of money tax-free.
In this way, if an employee subscribed for £1m shares, they would pay £10,000 and be left with £990,000 cash which would supposedly not be treated as taxable earnings. The company could then deduct the amount from its profit and loss account and make a substantial corporation tax saving.
Businesses embroiled in the tax avoidance strategy have often been mis-sold the advice by their trusted accountants and financial advisors who received substantial amounts of secret commissions in the process.
It is estimated that there are well over a thousand victims in the UK, with the total losses suffered set to exceed £1bn.
The scheme has been caught by HMRC which has issued tax assessments to the companies and/or the individual employees entangled in the scam. Should the company in question become insolvent, the liquidator has the right to call in outstanding payments of the shares, leaving affected employees with an unplanned liability to both the company and HMRC often worth millions.
FS Legal is working in partnership with barristers at Exchange Chambers to advance a group action on behalf of the victims of these schemes.
Julia Norris, partner at FS Legal, said: “This ‘E-Shares’ scheme is a prime example of negligent tax advice being given to innocent owner-managers by their most trusted accountants and financial advisers.
“The scheme, like many others before it, was always going to be caught by HMRC and have a detrimental impact on the business and employees involved, often causing severe personal hardship. Unfortunately, the advisers told their clients none of this.
“Victims of the scheme have already successfully brought a claim against their advisers who recommended the scam in the first place. We are now looking to advance a group action on behalf of the people who’ve been lured into the tax avoidance scheme.”
George Rowell, a tax barrister at Exchange Chambers, said: “’E-Shares’ was always highly risky as it fell within the Disclosure of Tax Avoidance Schemes legislation. It was bound to be challenged when HMRC received the client’s tax return, leading to a stressful enquiry lasting several years, followed by a large tax assessment.
“Victims of the scheme were often given totally inadequate warnings of such risks when their accountant or IFA persuaded them to sign up to the scheme.”
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