“I just did what my adviser recommended” won’t work in court

Date: 28 Oct 2015

Bumblebee Design

Andrew Watters, director at Thomas Eggar, talks about the Little Wing Films case and why UHNWs must make sure that any film investment they are planning for is legitimate.


What risks do the UHNW clients face when investing in film?

As we saw in the Little Wing Films case, where a financial adviser and a group of investors (many of whom are UHNW individuals), are facing trial for allegedly setting up a fraudulent investment scheme, there is a thin line between avoidance and evasion. Any tax planning is avoiding tax that might otherwise be paid if the planning had not occurred. The point at which the tax planning becomes unacceptable can be difficult to pinpoint. The world of evasion is simpler.  The defendants are accused of deliberately misleading the taxman and there is little scope for different views.  If found guilty the defendants will be sentenced as criminals.

What lessons can be learnt from this case?

As far as investors are concerned, while their tax returns will no doubt be challenged as they will have been based on a fraud, they will not be criminals unless they were involved in the fraud. Most investors into tax schemes enter them on the advice of their professional advisers. This case is an example of the need for care on the part of professional advisers before recommending any planning to their clients. In fact, certainly from the point of view of civil penalties, the defence of “I just did what my adviser recommended” is no longer adequate. There is an increasing expectation that individual taxpayers must make serious efforts to satisfy themselves that any tax planning in which they engage is legitimate.