KPMG in UK sued for £6m by property company Mount Anvil

KPMG in the UK has been sued for more than £6 million (€6.9 million) by property company Mount Anvil, which claims it was left with an unexpected tax bill after the Big Four firm gave it negligent advice.

Mount Anvil, a London-based homebuilder, said it had £3.9 million of extra tax liabilities that only came to light after HMRC launched an inquiry into the tax return of one of its subsidiaries in 2017, according to a legal document.

KPMG had prepared tax returns for Mount Anvil Group and its subsidiaries for the five financial years ended between 2012 and 2016.

Claim

The claim, filed in the High Court in London at the end of March, adds to KPMG UK's regulatory and legal troubles. The accountant is already under investigation for its audits of collapsed outsourcer Carillion, engine maker Rolls-Royce and Conviviality, the owner of Bargain Booze, which went into administration in 2018.

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Its restructuring division, which it sold for more than £350 million on Tuesday, is also awaiting a tribunal decision over an alleged conflict of interest in its role as administrator of bed manufacturer Silentnight in 2011.

The lawsuit centres on the tax treatment of loans worth a combined £49m received by Mount Anvil from a real estate fund run by investment firm Ares Management in 2010 and 2011.

Mount Anvil reported revenues of £238 million in 2019 and markets properties across London for prices ranging from £300,000 in Bow in the east of the city to £3.5 million in Hampstead.

The company claims KPMG failed to make deductions reflecting the cost of the loans which would have allowed it to reduce its tax bill by availing of “group relief”. It also accused KPMG of incorrectly applying tax law by including certain other deductions.

The property company claims KPMG breached its duties by failing to exercise reasonable care, skill and diligence. It is seeking an award of damages and interest from the court.

“KPMG, one of the ‘Big Four’ accounting firms, had at all times held itself out as being a specialist, providing robust tax compliance services through high calibre tax professionals supported by best-in-class process and technology,” Mount Anvil said in its legal claim. Preparing a tax return that complied with law was the “minimum” of KPMG’s professional duty and its expertise in doing so was the very reason Mount Anvil hired the firm, it added.

Loss

Following HMRC’s inquiry, KPMG agreed with tax officials in June 2020 that Mount Anvil’s total additional tax liability was more than £3.9 million. This included the loss of £3.6 million of tax relief and additional tax payable of £348,000 that the company would not otherwise have owed, Mount Anvil said.

Mount Anvil said its other losses included fees of more than £290,000 it paid to KPMG for dealing with the HMRC inquiry and £40,000 paid to RSM, another accountant, to correspond with tax officials about potential penalties for filing incorrect tax returns. Ultimately, HMRC did not penalise Mount Anvil.

The housebuilder, which secured a £50 million loan facility from the Greater London Authority last year to accelerate the development of 2,000 homes, also claimed it suffered borrowing costs of at least £1.8 million because of KPMG’s negligence, taking its total alleged losses to more than £6 million.

KPMG and Mount Anvil declined to comment. A person briefed on the case said KPMG would defend the legal claim. – Copyright The Financial Times Limited 2021