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Posted: 02 Nov, 2020

On 14th October TMA, in partnership with Manolete Partners, hosted a webinar on dealing with tax avoidance claims with experts from Manolete Partners, FRP, The Wilkes Partnership and HMRC speaking about their experiences of claims and how to manage them in the interests of the company and stakeholders. You can access the full recording here 

Andrew Cawkwell, TMA Director and Associate Director of Manolete Partners’ North East Office opened the webinar and welcomed Manolete’s Nick O’Reilly who moderated the session. Full recording can be viewed here.

An Insolvency Practitioner’s Perspective

Geoff Carton Kelly, Partner in FRP’s Restructuring Advisory Team, kicked us off by sharing his experience of recovering tax in relation to tax avoidance schemes. As an Insolvency Practitioner, his role is to use statutory powers to collect information and documentation with a view to identifying misfeasance actions. Company data, third party involvement, trust structures, transaction history, and data from hardware is all examined to establish and support the case.

As one might expect, he said that where a target is well funded, every claim tends to be vigorously defended and in recent years, complications in getting settlements over the line have included the loan charge legislation which allowed HMRC to settle directly with targets. However, he also said that this can usually be overcome through negotiation, particularly since the loan charge review which shortened the relevant period and the requirement for targets to pay HMRC in full.

With his focus being on evidence gathering, asset and fund tracing, and the wherewithal of the target, Geoff often works closely with HMRC which tends to have more information on the target and can provide useful leverage. Having concluded an investigation, Geoff said it is then paramount to have the right legal counsel to guide you down the right route to achieve a settlement.


A Litigation Solicitor’s Perspective

Andrew Garland, Partner in The Wilkes Partnership’s Business Recovery & Turnaround Team, then shared his experience of tax avoidance schemes in insolvency. Years ago, when he first came across tax avoidance schemes, Andrew said they seemed unchallengeable with the courts seeming to regard them as legally sound. But following continuous challenges by HMRC, the disguised remuneration legislation was introduced in 2010. However rather than stopping the schemes as the legislation intended, schemes becoming ever more unusual to try and avoid the new legislation.

In one case Andrew worked on, the company started (pre-2010) with a commonly used employment finance benefit scheme. Post-2010 they then employed a number of convoluted schemes including a films rights scheme, an employment related securities scheme, purchases of gold bullion followed by yet another scheme all in an attempt to avoid paying tax. What they hadn’t considered, was how their actions would be viewed in the event of the company going bust.

Andrew said that while there have been many opinions written by leading council as to why such schemes worked from a tax point of view, little thought was given to what would happen if the company goes bust. Such schemes are clearly not in the company’s best interest which opens up directors to attack by a liquidator. And in the case of the above example, the directors ended up with a settlement of six-figures to get rid of the claim.

Speaking briefing about the litigation process of such cases, Andrew said that most don’t go to court as once the investigation has concluded and the facts have been established, the claims are usually so obvious that most targets settle early on. The directors realise that “the game is up”.


An Insolvency Solicitor’s Perspective

Alison Kirby, Associate Director at Manolete, then spoke about a specific case, that of PV Solar Solutions, where director’s duties in relation to tax avoidance were considered for the first time. PV Solar Solutions had entered into an EFRB scheme and through a series of paper transactions sums totalling £758,000 were credited to the directors’ overdrawn loan accounts, thereby depriving the company of these assets. The company went into administration within two years of entering into the scheme and then into liquidation. The liquidator advanced misfeasance claims against the directors and pursued a claim that the payments into the scheme were void as transactions of undervalue. Despite the directors defending their actions, the judge presiding over the case was satisfied that the directors did not act according to their director’s duties and that they were liable to repay the money, plus costs.

Alison then moved on to share the process by which Manolete assesses the cases it’s presented with. To begin with, she said it involves an assessment of the legal case, and assessment of the means of the proposed target and also whether the loan charge applies. If the loan charge applies, Manolete’s team could be competing with HMRC for the same assets, so they often work closely with HMRC to present a united front and maximise recoveries from an insolvent estate.


HMRC’s Perspective

Simon Chaplin, Head of HMRC’s Counter Avoidance Insolvency Team, then spoke about the importance of early engagement with HMRC when dealing with tax avoidance cases. According to Simon, HMRC’s message is simple: “We expect everybody to pay the right amount of tax and not use artificial structures that don’t work, or abuse the insolvency process and abuse the proper liability.”

He urged anyone working on tax avoidance claims to contact HMRC early on and said they will benefit from a two-way provision of information. He said there are some specific circumstances where HMRC can provide information about directors and that they also have a comprehensive list of avoidance scheme users which can be useful when you want to check to see if there’s some avoidance going on or not.

HMRC also has lots of specific tax avoidance scheme paperwork. With some of the more complicated schemes, HMRC will provide IPs with information about how schemes work and will often bring subject matter experts to a meeting to explain them fully.

Overall, Simon said that HMRC is a “willing and engaged creditor” able to help with all matters.


Thank you to all the speakers for sharing their experiences and to everyone who joined the webinar.

The next TMA event will be a webinar on 11th November in partnership with the Bank of England where we’ll hear from Alieda Moore, who will give an update on the state of the economy. Register here 

Following that, on 19th November we’ll have a webinar with Simon Weston CBE, a veteran of the British Army. Register here 

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