The Daily Mail recently reported on Wayne Rooney being at risk of a £5m tax bill flowing from a challenge into his investment in the Invicta 43 scheme. Companies House records for the Invicta Film Partnership No 43 LLP date Mr Rooney’s investment to February 2008.
Mr Rooney’s investment was well before the General Anti-Avoidance Rule came into effect, so it follows that HMRC could only challenge his investment if there was some aspect of it that contravened tax law. It also seems inherently unlikely that anyone would invest significant sums in a ‘tax scheme’ without believing that it operated within the applicable tax laws.
As lawyers specialising in professional negligence claims, we have been involved in many cases resulting from tax planning gone wrong. However, typical claimants are not high-profile celebrities (though we have had a few of those), but are typically high net worth individuals such as doctors and dentists, who have always used the services of a financial adviser.
In our experience, pushing the limits of tax law create two particular risks for investors. First, there might be uncertainties about the exact extent of what was legal. For example, in a film sale-and-leaseback scheme such as Invicta 43, tax relief might be sought against the expense of producing a film. But while payments to actors and film crew might seem obvious expenses of producing a film, it might be more ambiguous as to whether promotional costs would be allowable for tax purposes in the same way.
A typical investor is unlikely to spot or appreciate this type of risk. It is therefore important they are either made aware by their professional advisers of the relevant risks, or made aware that they are not being advised.
Second, when tax law is being pushed to its limits – and this may vary from one tax year to the next – it can be important for the success of these schemes that they are implemented correctly and on time. For example, if an investor decides to proceed, but his investment is not implemented before a change in tax law occurs, then the investor might incur expense without securing the expected advantages.
It is therefore important for professional advisers to ensure arrangements are in place at the correct time to ensure schemes are implemented correctly.
Due to the sometimes highly leveraged nature of some of these investments, the losses – if they go wrong – can considerably exceed the sums originally invested. If HMRC is seeking significant back tax or even penalties, it would be natural for the investor to wonder whether they had a professional negligence case against their adviser.
• It was recently reported that Wayne Rooney was at risk of being hit with a £5m tax bill.
• There is a difference between advising on a course of action and providing information.
• Advisers could be subject to complaints if they do not take enough precautions.
As lawyers, we support financial advisers and, while we cannot dictate the nature of clients’ cases, we can offer advice on how not to become the subject of litigation.