Blackstar (Europe) Limited – ‘E’ Shares – Tax Avoidance Scheme
Blackstar (Europe) Limited (in Liquidation) (‘Blackstar’) was a company that promoted and sold tax avoidance schemes. It typically operated by selling the schemes through accountants and IFAs, who would recommend the schemes to their long-standing company clients. Sometimes the accountant or IFA would be rewarded with a commission paid out of the generous fees charged to the client by Blackstar.
One such tax avoidance scheme was known as ‘E’ Shares (also known as ‘F’ and ‘P’ Shares) by which a company would allot shares at par to an individual employee, with the company then agreeing to either give or loan the individual the whole of the subscription price. The employee would pay 1p for a share with a value of £1 and so keep the balance of 99p. In this way, if an employee subscribed for 1m shares he would be left with £990,000 cash in hand. The £990,000 was claimed to be tax free in the employees’ hands and, further, to allow the company to make a corporation tax deduction.
Unsurprisingly, the scheme was challenged by HMRC as a payment of disguised remuneration, with tax and NIC assessments being raised against the company and/or individual employees. Further, should the company become insolvent, the liquidator of the company would have the right to call in outstanding payment of the shares (£990,000) which were then worthless. This leaves the employee with an unplanned liability to the company and HMRC of up to around £1.5m, which obviously can cause severe personal hardship.
Victims of the scheme have already successfully brought a claim against their accountant advisers who recommended the scheme in the first instance. Unsurprisingly those claims have been settled by the accountant advisers.
“E Shares was always highly risky as it fell within the Disclosure of Tax Avoidance Schemes legislation. This meant that it was bound to be challenged when HMRC received the client’s tax return, leading to a stressful tax enquiry lasting several years and eventually a large tax assessment. Clients were often given totally inadequate warnings of such risks when their accountant or IFA persuaded them to sign up to the scheme.”
It is estimated that there are well over 1000 victims of these schemes and that the total loss suffered could well exceed £1 billion.
FS Legal will be working on a full ‘no win no fee’ basis for victims of these schemes.
We represent a number national and multinational corporations, high profile individuals including City figures and well-known sports professionals. Our firm and our lawyers have both been ranked by the independent legal directories Legal 500 and Chambers & Partners in this specific field.
We provide expert lawyers recommended and recognised as ‘Leading Individuals’ by Chambers & Partners who note the firm’s “pragmatic, practical and efficient approach” and “determined litigators with a very good sector knowledge” Legal 500 notes “FS Legal is a firm that punches well above its weight and is particularly strong in the areas of financial services, pensions and tax schemes” adding that the team has “a deservedly good reputation for providing a top-quality, commercial service“.
We understand that, whether it’s a personal or business matter, funding is a key concern. We have a variety of funding options available to seek to remove the risk and cost from our clients. Unlike most firms, we are able to operate the vast majority of our cases on a contingent (‘no win no fee’) basis. FS Legal will be working on a full ‘no win no fee’ basis for victims of these schemes.