Inventive Tax Strategies (ITS), which specialised in stamp duty land tax (SDLT) mitigation, has become insolvent after a number of its tax planning products failed following retrospective changes in government legislation.
ITS - which is to be administrated by Finbarr O'Connell and Henry Shinners of Smith & Williamson - was set up in 2008.
The Berkshire-based firm, whose turnover in 2012 was close to £7m, sold tax planning products to over 2,400 clients through its own sales agents and a network of independent introducers, including financial advisers, solicitors and accountants.
By mid 2012 directors Paul Bennett and Shiv Kapoor concluded that the company was unlikely to be able to sustain its historical levels of turnover and profits because of the government's well-publicised intention to crack down on SDLT schemes. They began taking steps to restructure the business.
ITS anticipated that any legislation in this area was likely to take effect in July 2013, but in the March 2013 budget, the government announced changes to s45 of the Finance Act 2013 regarding SDLT Schemes (the 'Sub-Sale Rules') requiring users of SDLT Schemes to pay the outstanding SDLT or submit a detailed appeal explaining why this amount was not payable.
These rules were unexpectedly applied retrospectively to a one year prior to the Budget announcement and set a date of 30 September 2013 for the tax to be paid. As a result, several of ITS's schemes - known as Crystal, Jovian, 3S and Option Planning - failed, leaving clients with repayment bills to HMRC.
The directors estimated that if all its SDLT Schemes affected by the rules failed, then it would have a liability to repay in the region of £20m of fees to clients. Despite trying to develop new tax planning schemes, cutting directors' salaries and profit sharing arrangements and instituting a redundancy programme, ITS went into administration in October 2013.
In the latest update provided to ITS creditors, Smith & Williamson administrators stated: 'The potential impact of the rules rendered the company insolvent both on a cash flow basis and on a balance sheet basis.'
According to the creditors' report, the administrators are in the process of selling the company to Minerva Strategies Ltd for an upfront fee of £30,000.
They have also retained BH Tax Ltd (BHT), which had previously provided written tax advice to some ITS clients, to deal with clients' enquiries with regard to the failed SDLT schemes. BHT is currently dealing with around 2,000 live HMRC enquiry/discovery processes on behalf clients and has estimated that this could increase to over 2,500.
