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SRA update: Referral fees and SDLT mitigation schemes

SRA update: Referral fees and SDLT mitigation schemes

Two current 'hot topics' are the forthcoming ban on referral fees and the treasury's dislike of Stamp Duty Land Tax mitigation schemes. Recent consultation and guidance is available on both issues. A recent first tie tax tribunal decision found that an unlimited company had not carried out company law requirements for the payment of dividends, and the scheme therefore failed.

The proposed ban on referral fees in personal injury cases

The SRA published a discussion paper on the proposed ban on 12th June 2012.  This explained by the Government had decided to ban refrral fees, dealt in detail with sections 56 to 60 of The Legal Aid Sentencing and Punishment of Offenders Act 2012 [LASPO], and gave an indication of the SRA current approach to the ban.

The document made it plain that the current 'outcomes- focussed approach' to regulation would apply and that any breaches of the Act would be viewed within the framework of the current Code of Conduct and the 10 SRA principles that underpin all regulatory issues. The paper reminded practitioners that, other than legal aid and criminal matters, 'we do not restrict the types of work in which referral fees can be paid'.

The current approach of the SRA is risk based and proportionate. Recognition is made that the referral fee ban means that the Claims Management Companies [CMC] face a 'challenging future' as an industry whose niche has been the ability to profit from the ability and willingness of solicitors firms to pay referral fess in return for case leads now faces removal of that niche in it's primary business sector.

A clear indictation is given that businesses may become Alternative Business Structures [ABS] in order to circumvent the ban. It is indicated that such an arrangement where a firm of solicitors joins forces with a CMC could not be prevented, but conditions could be imposed on the licence of the ABS or the application refused if the plans pose a threat to the public interest or regulatory objectives.

An analysis of responses to the paper was posted on 4th September 2012.  Comments included;

  • A level playing field with other regulators is required
  • Policing the ban is likely to prove difficult
  • Clarity as to what arrangements will be compliant is needed.
  • Clear guidance ( that has been promised for joint marketing schemes) from the government on what consitutes 'services for which payment may be made' is needed as a matter of urgency.
  • Concern has been voiced on the effect of the ban on small firms who will go under as a result.

The SRA has promised to issue the formal consultation and is looking to meet with all those who wish to contribute to it's strategy. 

Conveyancing warnings

Three warnings now appear on the SRA website:

Land Banking Schemes

Issued on 14 September 2012 — This warning notice is for anyone who is involved or who is considering acting for clients involved in the promotion or facilitation of investment schemes which involve selling plots of land to investors on the basis of prospective planning permission.Whilst this notice does not form part of the Solicitors Regulation Authority's (SRA) Handbook, the SRA may have regard to it when exercising its regulatory functions.

Bogus Law firms and Identity Theft.

Issued on 26 March 2012 — There are serious and continuing risks to the public arising from the activities of criminals and criminal gangs who are setting up bogus law firms or bogus branch offices of genuine law firms with the intention, usually, of stealing mortgage loans. This warning provides information about the threat and advice about how to protect yourself and others from it.

Stamp Duty Land Tax mitigation schemes.

This is clearly the latest 'hot topic' as a number of investigations have surfaced as to the regulatory aspects of such schemes.  The warning was Issued on 16 February 2012 — for anyone who is or is considering becoming involved in the promotion or facilitation of schemes the purpose of which is to avoid or reduce stamp duty land tax. We are particularly concerned with schemes involving residential properties, but this notice may be helpful in relation to schemes involving any type of property.

The Law Society Gazette recently reported the decision of the first tier tax tribunal who ruled against Durham based Vardy Property Group who had sought to rely upon sub sale relief to avoid the payment of £290,000 stamp duty on the purchase of a £7.25m commercial property. Vardy Group told the LSG that they do not intend to appeal. 

To download the warnings from the SRA website, please click here. ( although the SDLT warning is not currently available).

On 16th Feburary, the SRA issued a press release in respect of SDLT which 'urged the profession to think twice before becoming involved' in this type of scheme.  Chosing it's words very carefuly, the SRA said,

'If HMRC successfully challenges a scheme, buyers could be liable to pay all of the stamp duty land tax, plus interest and a penalty. Solicitors could also face punishment, as if they knowingly provided information in support of a tax return that is incorrect, HMRC could impose a penalty of £3,000 per submission.

The schemes look to take advantage of perceived loopholes in tax laws so buyers reduce or negate their charge to paying stamp duty Land Tax. The SRA is concerned about schemes involving residential properties and has warned the profession to make sure any involvement it has with SDLT schemes complies with the Solicitors Code of Conduct.

HMRC has warned it is actively challenging property sale transactions that have been artificially structured to avoid paying the correct stamp duty. It added that very few SDLT Schemes are successful in providing the savings their promoters claim.'

Richard Collins, Executive Director of the SRA said  'we will look very closely at the conduct of any firm actively involved in these schemes.

For any advice and assistance for issues like these please do call Jeremy on 0844 2722322 or submit a comment below. Jeremy will come back to you at the earliest convenience.

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