In V J Walsh v Greystone Financial Services [2019] EWHC 1719 (4 July 2019), the High Court dismissed all the taxpayer’s claims against the adviser who had recommended a scheme, which had failed.
Mr Walsh was a former equity trader employed by the Royal Bank of Scotland Group (RBS). Following advice from Mr Williams-Denton at Greystone, Mr Walsh had invested over £1m into a succession of film partnership schemes, with a view to reducing his income tax liability. The schemes had been devised and promoted by Mr Potter, a former partner in Ernst & Young.
As a result of the schemes, Mr Walsh first received a number of substantial repayments of income tax from HMRC. But HMRC opened enquiries, questioning in particular whether he had personally spent an average of 10 hours per week on partnership business, as required for uncapped sideways loss relief (ITA 2007 s 103B(2)). He was subsequently arrested without warning on suspicion of conspiring to cheat the revenue on the ground that he had allegedly submitted suspicious diaries. Mr Walsh contended that he was not aware of these diaries.
RBS then terminated Mr Walsh’s employment and HMRC demanded the payment back of all the repayments made under the scheme together with interest and penalties.
Mr Walsh sought to recover all his losses from Greystone. His main contention was that Mr Williams-Denton had been negligent and/or deceitful in his initial recommendation of the schemes, and in various aspects of the handling of the HMRC enquiries, and that Greystone was vicariously liable. Greystone denied the claims and contended that it was statute-barred. Mr Walsh argued, however, that under the Limitation Act 1980 (LA 1980) s 32, time could be extended in the case of fraud or deliberate concealment.
The High Court found that when Mr Williams-Denton had recommended to Mr Walsh that he use a film planning scheme as a means of mitigating income tax, he had made an implied (if not express) representation that his understanding was that such a scheme would be effective to mitigate Mr Walsh’s income tax, but that he was unlikely to have given a guarantee to that effect. The court also observed that the risk was likely to have been described as low. Mr Williams-Denton had therefore not been deceitful but he may have been negligent. This meant that LA 1980 s 32 had no application, so that Mr Walsh’s claim was statute-barred and it was not necessary to consider whether Mr Williams-Denton had actually been negligent. The court observed, however, that advice that assumed the film schemes did work may not have been ‘glaringly or obviously mistaken’ at the time the schemes were recommenced by Greystone.
In relation to some of the schemes, Mr Williams-Denton had taken dishonest payments. However, the court found that at the time Mr Williams-Denton had recommended the schemes to Mr Walsh, he had not intended to take these dishonest payments. Furthermore, it was not established that Mr Potter had never intended to make a film.
Finally, the court found that Mr Walsh had known that misleading activity reports, relating to his involvement with the partnership, would be submitted.
Why it matters: This lengthy decision, which runs to 324 paragraphs, may serve as a warning to many taxpayers who implement schemes. These carry risks and the recovery of losses from advisers who recommend these schemes can be challenging, even where the risks are mistakenly described as low and the advisers are shown to have acted dishonestly.
In V J Walsh v Greystone Financial Services [2019] EWHC 1719 (4 July 2019), the High Court dismissed all the taxpayer’s claims against the adviser who had recommended a scheme, which had failed.
Mr Walsh was a former equity trader employed by the Royal Bank of Scotland Group (RBS). Following advice from Mr Williams-Denton at Greystone, Mr Walsh had invested over £1m into a succession of film partnership schemes, with a view to reducing his income tax liability. The schemes had been devised and promoted by Mr Potter, a former partner in Ernst & Young.
As a result of the schemes, Mr Walsh first received a number of substantial repayments of income tax from HMRC. But HMRC opened enquiries, questioning in particular whether he had personally spent an average of 10 hours per week on partnership business, as required for uncapped sideways loss relief (ITA 2007 s 103B(2)). He was subsequently arrested without warning on suspicion of conspiring to cheat the revenue on the ground that he had allegedly submitted suspicious diaries. Mr Walsh contended that he was not aware of these diaries.
RBS then terminated Mr Walsh’s employment and HMRC demanded the payment back of all the repayments made under the scheme together with interest and penalties.
Mr Walsh sought to recover all his losses from Greystone. His main contention was that Mr Williams-Denton had been negligent and/or deceitful in his initial recommendation of the schemes, and in various aspects of the handling of the HMRC enquiries, and that Greystone was vicariously liable. Greystone denied the claims and contended that it was statute-barred. Mr Walsh argued, however, that under the Limitation Act 1980 (LA 1980) s 32, time could be extended in the case of fraud or deliberate concealment.
The High Court found that when Mr Williams-Denton had recommended to Mr Walsh that he use a film planning scheme as a means of mitigating income tax, he had made an implied (if not express) representation that his understanding was that such a scheme would be effective to mitigate Mr Walsh’s income tax, but that he was unlikely to have given a guarantee to that effect. The court also observed that the risk was likely to have been described as low. Mr Williams-Denton had therefore not been deceitful but he may have been negligent. This meant that LA 1980 s 32 had no application, so that Mr Walsh’s claim was statute-barred and it was not necessary to consider whether Mr Williams-Denton had actually been negligent. The court observed, however, that advice that assumed the film schemes did work may not have been ‘glaringly or obviously mistaken’ at the time the schemes were recommenced by Greystone.
In relation to some of the schemes, Mr Williams-Denton had taken dishonest payments. However, the court found that at the time Mr Williams-Denton had recommended the schemes to Mr Walsh, he had not intended to take these dishonest payments. Furthermore, it was not established that Mr Potter had never intended to make a film.
Finally, the court found that Mr Walsh had known that misleading activity reports, relating to his involvement with the partnership, would be submitted.
Why it matters: This lengthy decision, which runs to 324 paragraphs, may serve as a warning to many taxpayers who implement schemes. These carry risks and the recovery of losses from advisers who recommend these schemes can be challenging, even where the risks are mistakenly described as low and the advisers are shown to have acted dishonestly.
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