EY says it does not owe ‘duty of care’ to taxman in fight over property magnate’s tax affairs
EY has said it is under no obligation to help HMRC collect more taxes in defending itself against a High Court lawsuit over a British property magnate’s tax affairs.
The Big Four accounting firm said it owed no “duty of care” to HMRC to have given it information that could have helped it collect more taxes on £141m in profits made by Jamie Ritblat’s Delancey property investment firm, court documents seen by City PM show.
EY’s defence comes after HMRC sued the Big Four firm in July 2022 over claims it failed to disclose “key facts” that could have helped it recover more tax revenue from £141m worth of Delancey’s profits paid into an employee benefit trust (EBT).
HMRC is seeking to overturn a £400 settlement that is now blocking it from collecting taxes on the £141m profits that were paid into the trust owned by DV4 – a Delancey linked investment fund.
Jamie Ritblat – the son of former British Land owner Sir John Ritblat – founded Delancey in 1995, through which he later bought London’s Olympic Village in 2011 via a joint-venture with Qatar’s sovereign wealth fund.
Ritblat claims the £400 settlement blocks the UK government from collecting further taxes on the £141m paid into the DV4 Trust. In the tax years 2015/16 to 2018/19, the DV4 trust paid £141m to Delancey employees, including £63m to Ritblat himself.
HMRC claims it would not have entered into the £400 settlement if EY had disclosed information on the value of the Delancey-owned trust. The taxman instead claims it only entered into the 2015 settlement due to “misrepresentations” made by Delancey and EY.
In court filings seen by City PM, EY said it provided “all the information which HMRC required” as the Big Four firm argued it “did not owe any duty of care” to the taxman to help it collect more money from the DV4 Trust.
“EY did not owe HMRC a duty to anticipate all the information which HMRC now alleges it would have considered to be relevant to the proposed settlement,” the accounting firm said in High Court filings from 25 January 2023.
EY said “it would not be fair” to force it to “undertake investigations and enquiries on behalf of HMRC”, as it claimed any such requirement would “give rise to a direct conflict between the the duties owed by EY to its clients and the duty allegedly owed by EY to HMRC”.
The accounting firm instead said it “provided to HMRC all the information” the tax authority required, as it denied making any “misrepresentations” or “false statements” to the UK government agency.
EY argued that “if HMRC suffers any loss… then such loss will have been solely caused by or contributed to by HMRC’s own negligence”. The firm continued in arguing any disclosures “were made by EY on behalf of its client… and reflected the instructions of [DV4]”.
The accounting firm added that “HMRC would have entered into the Settlement Agreement in any event”, whether EY had handed the information over or not.
The Big Four firm continued in claiming that even if it is liable for HMRC’s loss, any liability extends only to a maximum sum of £2m, due to the initial terms of engagement upon which EY took the job.
“Even were its claim against EY to succeed, HMRC is not entitled to recover more than £2m from EY in any event,” the firm said, as it argued its initial letter of engagement limits “the scope of [EY’s] responsibility and liability” in any claim brought against it.
An EY spokesperson said it would be “inappropriate to comment on ongoing legal proceedings”.
“We strongly refute any suggestion of wrongdoing by EY and will continue to vigorously defend the claim against us,” they said.
A Delancey spokesperson said the real estate investor believes the 2015 settlement is “valid and that the various reasons put forward by HMRC to justify their breach are wholly without merit and have no legal foundation”.
The Delancey spokesperson noted HMRC “publicly initiated and offered” similar settlement deals to “hundreds of employers and trusts” as it claimed the UK taxman has “breached the terms” of its agreement with the DV4 Trust.
HMRC declined to comment.