Accounting giant Grant Thornton is facing a landmark legal claim over an “ineffective tax planning scheme” it sold to a leading electrical distributor in the UK.
In court documents seen by City A.M., R&M Electrical, which has overseas branches including in the USA, Asia, Kazakhstan and Iraq, accuses Grant Thornton of negligence and breach of duty.
The case centres on advice to take part in the Growth Securities Ownership Plan (GSOP), a scheme used by some businesses to provide tax-free or tax-reduced rewards to their employees.
At the time, Grant Thornton told the claimants that the GSOP "did not constitute tax avoidance but legitimate tax planning".
However, HM Revenue & Customs (HMRC) announced in 2016 it considered the scheme to be "ineffective" and tax avoidance.
"Customers, their advisers and avoidance scheme promoters, should be aware that HMRC considers these schemes and arrangements to be ineffective," HMRC said. "HMRC will act swiftly and rigorously to challenge such cases."
R&M Electrical is claiming damages after it was landed with an HMRC tax bill of £692,364.
In its claim form, R&M said Grant Thornton "failed to settle with HMRC within a reasonable period and/or to engage meaningfully with HMRC within a reasonable time or at all, despite the fact that the defendant knew and/or ought to have known that the claimants wanted the dispute settled quickly".
A Grant Thornton spokesperson said: “As a large professional services firm there are inevitably occasions where we become involved in legal claims. It would not be appropriate for us to comment on such litigation.”
Grant Thornton's tax dispute comes at a time when HMRC is ramping up its clampdown of potential tax avoidance. Analysis by the law firm Pinsent Masons found that the average length of custodial sentences for tax fraud has increased by 25 per cent to just over four years.
The number of successful prosecutions could be bolstered further once the strict liability offence for offshore tax evasion comes into force in autumn 2018, the firm said.
The offence will apply if a UK taxpayer fails to notify HMRC of his or her chargeability to tax, fails to file a return or files an incorrect return in relation to offshore income, assets or activities. The maximum penalty is six months' imprisonment.