Group action on £1bn tax avoidance 'E' Share losses scheme

Over a thousand business owners who are caught up in a tax avoidance scheme involving 'E' shares and are facing £1bn in losses are being invited to join a group action against the accountants and IFAs who provided them with advice, over claims of mis-selling

The scheme referred to as ‘E shares’, or sometimes ‘F shares’, ‘P shares’ or ‘partly paid shares’ was promoted by Blackstar (Europe) Ltd, a tax and wealth management company, set up in 2006, which went into voluntary liquidation on 23 June 2016. The latest insolvency statement was filed on 8 August 2018 and last filed accounts were July 2015. Four directors are still listed on Companies House and are involved in a number of non-related UK partnerships and limited companies.

The scheme involved 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. 

 The scheme has deemed to be tax avoidance by HMRC which has issued tax assessments to the companies and/or the individual employees.

FS Legal, a firm of litigation lawyers focused on dealing with complex commercial litigation for national corporations and high net worth individuals as well as professional negligence claims is working in partnership with barristers at Exchange Chambers to advance a group action on behalf of the individuals concerned.

Julia Norris, partner at FS Legal, said: ‘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, tax barrister at Exchange Chambers, said: ‘“E-Shares” was always highly risky as it fell within the Disclosure of Tax Avoidance Schemes (DOTAS) 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.’

The liquidator of Blackstar (Europe) Ltd has been contacted for comment.

Details of the FSL group action - tax negligence dispute

Report by Pat Sweet, additional reporting Sara White

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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