“Accountants must help tax avoiders”

Written on 13 June 2013

I can't help but feel conflicted after hearing the results of the Mehjoo case last week…

On the one hand, we have HMRC heavily cracking down on tax avoidance; and on the other, a High Court judge is ruling that practitioners have a duty to advise their clients how to avoid tax…

For those of you who don't know the case, Hossein Mehjoo, an Iranian refugee who sought asylum in the UK in the 1980s, set up a multimillion-pound fashion business here. When he sold the company, the accountancy firm, Harben Barker, recommended an aggressive tax avoidance scheme by Montpelier costing Mehjoo £200k.  As it turned out, Mehjoo would have avoided more tax by using the Bearer Warrant Scheme (BWS), a scheme available only to UK non doms until it was closed in 2005 and this had not been brought to his attention.  

Mr Mehjoo therefore decided to sue his accountants for failing to give advice on the BWS offshore tax avoidance scheme and last Thursday, Mr Justice Silber decided in the High Court that the claim had merit and that Harben Barker should pay £1.4m in damages.

While it is questionable that not making a client aware all of the possibilities for tax avoidance is negligent, the judge has ruled that an accountant has an obligation to help their clients avoid tax. In the light of recent proposals in the Finance Bill and in particular the introduction of the General Anti Abuse Rule, this contradictory court ruling has caused quite a stir and industry experts are now calling for an extension of the GAAR rules to protect accountants.

The most important lesson from the case was in paragraph 174 of the judgement, which explained that even if there had not been such an instruction from the client, the defendants' duty was to use all proper skill and care to give tax-planning advice so as to reduce or eliminate his liability to pay CGT.

The main point it seems for accountants is not to provide advice where they lack sufficient knowledge or experience.  What do you think?