In a results update on its website, James Hay’s parent company IFG said it is currently in a legal dispute with the UK tax office regarding the penalty.
James Hay confirmed it has 500 clients who invested around £55m in Elysian Fuels, which was listed on the Channel Islands Stock Exchangem, since been rebranded The International Stock Exchange (TISE).
The fund put money into projects including a bioethanol plant in the US and a renewable fuels refinery in the UK.
It promised investors returns up to 10 times the original investment over eight years.
HMRC is investigating the scheme and the tax relief claimed by investors who sold their shareholding to their Sipp, shortly before it collapsed in 2015.
“HMRC is investigating a non-standard investment known as ‘Elysian Fuels’, which was a structured investment in biofuel businesses initiated between 2011 and 2015, an equity component of which was held by some investors through their Sipp. Some of these investors are clients of James Hay,” the results said.
In one case, an investor bought £200,000 worth of shares – paid for with a £166,800 loan – and then sold the shares to their pension, a scenario where HMRC would then levy a 55% tax charge, which could then rise to over 100% of funds when penalties are applied.
The company said it is fighting the £1.8m charge, arguing that it “acted appropriately” in its role as a pension administrator but admitted that “the ultimate exposure” to the group is “uncertain”.
“James Hay did not advise investors in relation to these investments; it acted solely as pension administrator. James Hay has received, in April 2017, assessment notices for sanction charges from HMRC for the tax years 2011/2012 and 2012/2013 in total for £1.8m. These have been appealed and are the subject of ongoing discussions with HMRC.”
“The extent of any ultimate exposure to the group is uncertain at this stage, and may in any event be mitigated by indemnities available to us. Sanction charges can be levied by HMRC on Sipp providers where there is deemed unauthorised payments, the amount of which is dependent upon the individual circumstances of each investor,” the firm said in the results.
In January, James Hay banned non-standard investments such as overseas commercial property, storage pods and carbon credits via its products citing lack of demand for them from advisers.
Film scheme link
In a further twist, Elysian Fuels was marketed by Future Capital Partners, the promoter behind the Eclipse Film Partnership, widely used by celebrities and sports stars to exploit the UK’s tax relief system.
The company lost a court appeal against HMRC in February 2015, and HMRC said last November that investors in the schemes faced tax penalties almost 10 times their original investment.