The importance of time limits for bringing a claim for professional negligence against tax advisers for advice to invest in tax avoidance schemes

In May 2025 the ‘colourful’ Paul Baxendale -Walker became the first individual to be issued with stop notices by HMRC. The stop notices ordered Mr Baxendale-Walker to stop promoting tax avoidance schemes.

This development follows news that renowned jockey Frankie Dettori was declared bankrupt last year. It has been widely reported that the primary cause of Mr Dettori’s financial downfall was his involvement in a Baxendale-Waker remuneration trust tax scheme.

In a statement in December 2024 Dettori said: “A few years ago, I employed the services of professional specialist tax advisers to look after mine and my family’s financial affairs. A structure was created and I was told that it had been approved by HMRC.”

Commenting on the Baxendale- Walker remuneration trust scheme, intrepid Dan Neidel of Tax Policy Associates Limited remarked:

“in the modern world, tax schemes like this just don’t work. The courts take one look, say “it’s nonsense” and the taxpayer loses. The exact same scheme was challenged by HMRC in the “Northwood” case and the trust was found to be a “sham” – i.e. just make-believe.”

Liability of advisers

If a taxpayer receives positive advice from a professional to enter into a dubious tax scheme – such as the Baxendale-Walker remuneration trust -, without a clear explanation of the risks, it is likely that the adviser has acted negligently and could be liable for any losses that the client suffers as a consequence.

A reasonably competent adviser is expected to point out the risks of participating in a tax scheme, including the likelihood that the scheme may fail and the tax implications that would follow.

I am well acquainted with the Baxendale- Walker remuneration trust scheme, having represented a client who fell victim to it. In that case, I pursued a professional negligence claim against the client’s accountant and tax adviser. My client, a well-established family-run property business, had a long standing and trusted relationship with their accountant. Following an especially profitable year, the accountant referred my client to so-called specialist “tax advisers” who recommended a Baxendale-Walker scheme as an appropriate strategy to mitigate the company’s corporation tax liability. What the accountant failed to disclose was that he stood to receive a substantial secret commission if my client participated in the scheme.

Much like Frankie Dettori, my client alleged that their advisers described the Baxendale-Walker scheme as “tried and trusted” and assured them that it could not be successfully challenged by HMRC.

Relying on this advice, my client paid a significant sum into the remuneration trust. These contributions were claimed  as deductible expenses thereby reducing the corporation tax liability in the business annual tax returns.

Unsurprisingly, HMRC disagreed. They contended that the contributions into the trust were not “wholly and exclusively” for the purpose of trade and were therefore not deductible. Consequently,  HMRC pursued my client for unpaid tax, together with interest and penalties.

Time limit to bring a claim

Proving that tax advice was negligent is just one of several hurdles that a claimant must overcome.

There are hard edged time limits that apply to claims for professional negligence and if a claim is not brought within these strict time limits the claim will be statute barred – regardless of its merit.

In cases involving tax schemes, it can take years for HMRC to identify the arrangement, challenge its validity, and ultimately obtain a tribunal ruling confirming that the scheme did not work.

Under the Limitation Act 1980, a claim for professional negligence must be brought in Court within 6 years from the date the claimant suffered ‘damage’ as a consequence of the adviser’s negligence, or within 6 years from the date of the adviser’s breach of contract (see sections 2 and 5 of the Limitation Act).

In cases involving negligent tax advice, a prospective claimant may be tempted wait until the tax tribunal rules that a tax scheme is ineffective before considering legal action against their advisers. After all, until the tribunal has made that decision, no tax is payable – so there is no ‘loss’ – right?

Wrong!

This assumption can be dangerously misleading.

In cases involving negligent tax advice, it is likely that the 6-year time limit under sections 2 and 5 of the Limitation Act starts to run from the date that the claimant entered into the scheme.

If a claimant is outside the 6-year time period, they may have recourse under the extended period of 3 years provided for by s14A Limitation Act 1980 in cases where the claimant was unaware that they had a claim.

This provision allows a claim to be brought within 3-years of the date on which the claimant acquired “relevant knowledge” of the facts giving rise to the claim—typically where the claimant was initially unaware that they had a potential cause of action.

What qualifies as “relevant knowledge” is a technical and fact-sensitive question.  In Haward v Fawcetts (a firm) [2006] UKHL 9 Lord Nicholls described it as:

“…knowing with sufficient confidence to justify embarking on the preliminaries to the issue of the claim form… In other words, the claimant must know enough for it to be reasonable to begin to investigate further.” 

So, how does this apply in cases of alleged negligent tax advice? Can a Claimant safely wait until HMRC has successfully challenged the scheme in a tax tribunal before considering bringing a claim against their advisers?

This question was considered In Halsall and others v Champion Consulting Ltd and others [2017] STC 1958. In this case, the claimants sued their accountants for recommending their participation in two tax avoidance schemes. The High Court had no difficulty finding that the advice was negligent. However, the claim was ultimately dismissed because it was out of time.

The Court found the claim form had been issued more than 6 years after the claimants entered into the schemes, meaning the primary 6-year limitation period had expired.

It therefore fell to the Court to consider the 3-year time limit under s14A. The Judge concluded that the date that the claimants’ had relevant knowledge was the point in time that they became aware that HMRC were challenging the scheme. At that stage, they had enough information to suspect the advice they had received might have been flawed and to begin investigating a potential claim.

Unfortunately for the claimants, the proceedings were issued more than 3 years after acquiring that knowledge—rendering the claim time-barred.

Take-away

Given the strict limitation periods, it is crucial that anyone involved in a tax avoidance scheme under HMRC challenge seeks legal advice on a potential professional negligence claim as a matter of urgency and without delay.

How we can help

If you’ve been advised to enter a tax avoidance scheme such as the Baxendale-Walker trust and are now facing action from HMRC, our professional negligence team can help you assess the advice you received, consider whether you may have a claim, and guide you through the process without delay.