Herbert Smith wins High Court battle against Inland Revenue

Herbert Smith senior partner Edward Walker-Arnott has won a major test case victory in a battle with the Inland Revenue.

Walker-Arnott represented himself and the firm's other partners as taxpayers in a two-and-a-half day hearing at the High Court.

The case concerned how tax relief on £5m losses, from leases which the firm was left with after moving offices, should be deducted in its accounts.

Herbert Smith made provision for expected future losses in its 1989-1990 accounts, but the Inland Revenue argued that tax relief should be deducted on a yearly basis.

Mr Justice Lloyd ruled that Herbert Smith applied generally accepted rules of commercial accounting and that, with no specific statutory rule existing, the Inland Revenue should accept these principles.

David Martin, head of Herbert Smith's tax section, assisted Walker-Arnott in the case.

He says the firm took the unusual step of dispensing with counsel because “we felt [Walker-Arnott] could do at least as good a job as counsel.

“He is clearly someone who would be very good before the High Court, because he has the sort of presence that would go down well”.

Martin adds that the ruling is of “widespread importance” because it affects companies and individuals who prepare accounts under generally accepted principles. He says it confirms and “gives further assurance that those principles will apply for tax purposes”.