National law firm Simpson Millar has accepted a rebuke and £2,000 fine from the Solicitors Regulation Authority (SRA) for promoting stamp duty land tax (SDLT) avoidance schemes which cost HM Revenue & Customs (HMRC) over £4.5m.
The sanction is the most the SRA can hand out without referring the firm to a disciplinary tribunal.
The regulator said the firm’s clients had been involved in avoidance schemes in 234 conveyancing transactions, in 204 of which it also acted for the lender.
Simpson Millar admitted advising other law firms on schemes in “at least 80 additional transactions”.
The events predate the law firm becoming an alternative business structure and acquisition by Fairpoint Group plc.
Greg Cox, managing partner at Simpson Millar, told Legal Futures that the firm had co-operated fully with the SRA throughout its investigation.
In a regulatory settlement agreement published yesterday, the SRA said it produced an initial report on the tax avoidance schemes in 2012, but “subsequently undertook further investigations into complaints made against the firm concerning similar matters”.
The SRA said the schemes were promoted by Innovative Tax Solutions, Inventive Tax Strategies, Sterling Tax Strategies and the Professional Advice Bureau Limited.
The regulator said Simpson Millar was paid £152,000 by the promoters of the schemes, £203,000 by buyer clients and received a further £34,300 from the promoters for advising other law firms on avoidance schemes.
The SRA said the law firm used a ‘husband and wife scheme’ in 154 transactions, an ‘unlimited company scheme’ in 44 transactions and a ‘nominee scheme’ in 32 transactions.
In all three, lenders providing mortgage funds were not informed about the scheme and buyers were not advised of the potential risks, “including risks arising from the way in which the property would be held on completion”.
The SRA said the 234 transactions “initially resulted in the non-payment of at least £4.57m” to HMRC.
The SRA said HMRC issued “technical newsletters” in 2007 and 2010, making clear that it did not consider the schemes to be legitimate avoidance tactics, “especially since the introduction of anti-avoidance legislation in December 2006”.
Simpson Millar admitted failing to act in the best interests of both lender and purchaser clients, contrary to the Solicitors Code of Conduct 2007.
The firm also admitted acting in transactions where there was a conflict of interest, or significant risk of a conflict between the interests of clients.
The SRA said a conflict existed “because the firm owed separate duties to act in the best interests of both lenders and buyers in relation to the same transactions”.
Simpson Millar also admitted failing to keep accounting records properly written up, breaching the Solicitors Accounts Rules 1998.
In mitigation, the SRA said the law firm “started to accept instructions for the implementation of SDLT schemes in September 2009 and ceased to accept such instructions in July 2010”, a period of only 10 months.
“The decision to cease accepting new instructions was made by the firm of its own volition following a reassessment by the firm of its involvement in SDLT schemes. This decision was made some 18 months prior to the SRA warning notice of February 2012.”
The SRA said payments received from the promoters were “modest”, accounting for less than 1% of the firm’s revenues, as was the element clients were charged for implementing the schemes.
The firm had co-operated fully with the SRA over a six-year period since the investigation began in July 2011, “which, given the length of the investigation, has involved a significant amount of senior management time”.
The regulator rebuked Simpson Millar, fined it £2,000 and ordered it to pay costs of £12,950.
Mr Cox said Simpson Millar fully accepted the conclusions of the SRA, as set out in the settlement agreement.
“The firm only accepted instructions relating to this type of SDLT scheme for a matter of months in 2009 and 2010.
“The firm ceased undertaking such work almost eight years ago, before the SRA investigation began, and have co-operated fully with the SRA throughout its investigation, treating the matter with the utmost seriousness.”
Fairpoint went into administration last year and Simpson Millar is now operating with backing from Doorway Capital and recently made nearly 100 staff redundant as part of a restructuring exercise.
Mr Cox said: “We announced a redundancy consultation in December 2017. This was necessary to stabilise the firm after significant under-investment by Fairpoint Group plc during the period it owned the firm, which had resulted in a fall in revenue in 2017.
“We indicated at the start of the process that we proposed to make between 100 and 120 redundancies, and have now largely completed this process. The number of roles that are now redundant is 91 – and from these we have been able to redeploy eight colleagues to new roles…
“We are very sorry to have lost valued colleagues as a result of this process and our immediate concern is to provide support and assistance to help them find alternative employment and to thank them for all they have done for the firm.”