Tax
An entrepreneur, HMRC and the law |
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| Tax | |
| Written by Emma Banister Dean, an Associate in the Dispute Resolution department of Blandy & Blandy LLP | |
| Friday, 16 July 2010 | |
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How a claimant can still be awarded his costs without the expense of a trial.
Blandy and Blandy have successfully represented Major Dhillon, an entrepreneur with a claim against his former tax advisers for breach of contract and negligent advice. Dhillon owned and ran an electronics company that made a substantial profit year upon year. He retained two individuals to advise him on the most tax-efficient way in which to deal with that profit and with his eventual sale of the company and retirement. Those individuals worked for several organisations including Messrs Haines Watts. In his judgment of 16 June 2010 Mr Justice Norris ruled on the advice given to Dhillon to declare a dividend as a way of reducing tax by paying out the company’s profit to him as a shareholder. Due to the offshore structure in which the company sat the tax legislation saw the dividend as Mr Dhillon’s personal income and he was taxed upon it. Dhillon’s claim was that he was not advised of this implication at the time and could have saved the tax by using other available options had he known. The company was eventually sold with no tax payable on the proceeds and the purchaser paid £ for £ consideration for the cash remaining in the company. Upon declaring the dividend to HMRC in his personal tax return Mr Dhillon was informed that HMRC did not intend to pursue him for the tax. By this time he had issued a claim against his advisors, being short of time in which to do so, and substantial costs had been incurred. Mr Dhillon changed his claim from a claim for damages to one for an indemnity should HMRC change its mind. At this stage the court stayed the claim in order to minimise further costs until a point when it would be clear that the risk of HMRC changing its mind and demanding the tax was no longer a real risk. When the new tax legislation came into force in April 2010 HMRC was thereafter unable to change its mind and pursue Mr Dhillon for any liability to tax on the dividend. The Defendants sought to re-open the case and to have it struck out with Mr Dhillon paying their substantial costs. Mr Dhillon sought to bring the matter to an end with the Defendants making a contribution towards his costs. In the hearing that ensued the Defendants argued that Mr Dhillon ought not to have issued the claim without having first made the declaration and that in now seeking to discontinue his claim he was obliged to pay their costs. Mr Justice Norris ruled that, the expert evidence having been united in the opinion that HMRC’s stance was an aberration, whilst the claim itself had not been tried there was sufficient determined or agreed fact for him to exercise his discretion to overrule the usual situation that the discontinuing party must pay the other parties’ costs. He ruled that there was sufficient found fact to know who was liable at the date of HMRC’s letter indicating their lack of intention to pursue the liability. The advisers were negligent and should therefore pay Mr Dhillon’s costs up to the date of HMRC’s letter. This shows that with the right legal argument even where a claim brought legitimately is later undermined by the decision of a third party, in this case HMRC, a claimant can still be awarded his costs without the expense of a trial to look into all the detail of the claim as it once was.
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