The longest tail in the accountants’ PI book sits on tax advice, and the clock often does not start running until HMRC writes a closure notice.
Tax advisory work is the highest-frequency source of significant PI claims against accountants. The reasons are structural: tax advice is given against a moving legislative target, the outcome is tested by a third party (HMRC) rather than the client, the consequences of error compound through interest and penalties, and the limitation clock under the Limitation Act 1980, section 14A often does not start until the client has knowledge of the loss — which can be years after the advice was given. This guide covers the common claim patterns we see across the tax-advisory book, the limitation position, and the difference between a tax adviser’s duty of care and a tax preparer’s duty of care.
Tax PI claims cluster around a small number of recurring fact patterns. The five that produce the largest volume across the market are: SDLT planning and reliefs, IR35 status advice, EIS / SEIS qualifying-status opinions, residence and domicile advice, and partnership tax structuring. A sixth — R&D tax credits — has become a distinct sub-line in its own right and is treated separately in our R&D tax credit claims and PI guide.
SDLT. A long line of SDLT planning schemes — sub-sale relief, multiple dwellings relief, mixed-use rate arguments — has produced claims where HMRC successfully challenged the planning years after completion. The client recovers the underpaid duty plus interest and penalties; the claim against the adviser follows. Many of these claims now run on a limitation argument because the original advice is more than six years old.
IR35. The off-payroll working rules, the 2017 public sector reform and the 2021 private sector reform have produced claims from engagers, agencies and personal service companies. The adviser’s exposure depends on which party they advised and what assumptions were made about the working practices versus the contract.
EIS / SEIS. Qualifying-status opinions given to issuing companies and to investors are a major source of claims when HMRC subsequently withdraws advance assurance or denies a claim for relief. The investor’s loss is the lost relief plus interest, and the claim is typically against either the issuing company’s adviser or the investor’s own tax counsel.
Residence and domicile. Advice on the statutory residence test and on the remittance basis is heavily fact-dependent. Claims arise where the day count was wrong, the ties test was wrong, or the remittance position was misanalysed. The 2025 abolition of the non-dom remittance basis has created a transitional advisory window in which mis-stated planning carries material claim risk.
Partnership tax. Profit allocations, salaried-member rules for LLPs, partnership conversion and incorporation all produce claims when HMRC takes a different view on the substance of the arrangement.
The thread across all five categories is the gap between the date of the advice and the date of the loss. Tax advice given in 2020 may produce a claim notified in 2027. The limitation position is what makes this possible.
Tax advice claims are advisory negligence claims and are within the standard PI insuring clause for civil liability arising from the conduct of the firm’s professional business. The mechanical questions are the same as for any PI claim: retroactive date, notification, aggregation, limit and excess.
Two points deserve specific attention.
Limitation Act 1980, section 14A. For latent-damage claims in professional negligence, the limitation period is the later of six years from the cause of action or three years from the date the claimant had the knowledge required to bring the action, subject to the 15-year longstop in section 14B. For tax advice claims, the “knowledge” date is typically when HMRC’s position crystallises — closure notice, formal assessment or settlement contract — not when the original advice was given. The deliberate-concealment extension under section 32 can also operate where the adviser actively concealed the position.
The discovery test. “Knowledge” under section 14A is a question of fact tested objectively. The claimant must know they have suffered damage attributable to the act or omission, and must know the identity of the defendant. Knowledge does not require legal advice or certainty as to the outcome of the claim. In tax advice cases, courts have held that knowledge can arise from receipt of an HMRC enquiry letter or a draft assessment — well before any final liability crystallises. This matters for both limitation and for notification under the PI policy.
The duty of care framing differs between tax adviser and tax preparer. A tax preparer — submitting a return, applying agreed treatments — owes a duty to file accurately on the basis of information supplied. A tax adviser — giving an opinion on a structuring decision, qualifying status or planning arrangement — owes a higher duty of substantive analysis, including a duty to identify and explain the risks. The PI policy generally covers both roles; the standard of care the adviser is held to differs. Claimant solicitors are increasingly skilled at characterising preparation work as advisory work to engage the higher standard.
Aggregation is a sharper point in tax than in most other PI lines because one piece of advice can be replicated across many clients. The aggregation wording in AIG Europe Ltd v Woodman [2017] UKSC 18 — “related claims arising from the same originating cause or source” — is the wording that applies across most of the participating insurer market. Whether two SDLT claims based on the same planning approach aggregate depends on the precise wording and on the facts.
A regional accountancy practice advised a high-net-worth client in 2019 on a residence-and-domicile question relating to a UK property sale. The advice concluded that the client was non-resident under the statutory residence test for the year of disposal, and that the gain was therefore outside the UK charge. The advice was given on a paid fixed-fee basis and supported by a five-page memo.
In 2024, HMRC opens an enquiry into the client’s residence position. After two years of correspondence, HMRC’s view is that the day-count analysis was wrong because the adviser had treated certain transit days inconsistently and had not properly tested the family tie. HMRC assesses the gain at around £640,000 of CGT plus interest of approximately £85,000 and a careless-behaviour penalty of around 18%, totalling roughly £115,000 in penalty. The client settles in 2026 for approximately £840,000 total.
The client pursues the practice in late 2026 — seven years after the advice. The limitation point: section 14A applies because the client’s “knowledge” of the loss arose only when HMRC’s position crystallised in 2026. The cause of action is in time. The PI policy responds. Defence costs and indemnity total approximately £680,000 inside the limit. Had the practice argued the engagement letter constrained the duty to preparation rather than advisory work, the claim would likely have succeeded anyway on the substance of the day-count error — the engagement letter scoping is the protection against borderline claims, not gross-error claims.
Apex’s view: We tell tax practices to assume the limitation clock does not start until HMRC crystallises its view, and to plan run-off, retroactive date and aggregation wording around a ten-year tail. Engagement letters do most of the work in distinguishing adviser from preparer duties of care; firms that have not refreshed their engagement letters since the 2017 reforms are exposed on every advisory matter. The market is hardening on tax practices with material historic advisory revenue and softening for firms that can demonstrate a tight, documented advisory process. Where you sit on that line is decided by the file, not by the proposal form.
Apex Insurance Brokers serves UK professional services firms and commercial businesses. Call 0117 325 0027, email hello@apexinsurancebrokers.co.uk, or request a quotation.
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