A court of appeal ruling made yesterday appears to suggest that accountants have a duty to advise wealthy clients of options to avoid paying tax say Harris & Co accountants Northampton, who specialise in accountancy services.
The High Court judge hearing a case of professional negligence brought against Harben Barker, [EWHC QB] Mehjoo v Harben Barker (A Firm) & Anor  EWHC 1500 (QB) (05 June 2013)said the north-west based accountancy firm should have told their client, Hossein Mehjoo, about an offshore tax avoidance scheme.
Mehjoo, an Iranian refugee who built up a multimillion-pound fashion business in the UK, successfully sued the firm for £1.4m, according to the Times.
The case relates to Mehjoo’s attempts to avoid a £850,000 tax bill on the sale of his co-owned business, Bank Fashion Ltd. In 2005, he paid £200,000 to enter an aggressive tax avoidance scheme run by a provider called Montpelier.
When that failed, Mehjoo sued Harben Barker over the firm’s failure to give him better tax planning advice. In the judgement handed down yesterday, Mr Justice Silber found that a ‘reasonably competent’ accountant would have recognised that, as a non-dom, Mehjoo was eligible for tax schemes not available to ordinary UK citizens.
The judge said Mehjoo should have been advised to enter a scheme called the Bearer Warrant Scheme (BWS) which, until it was shut down by HMRC in 2005, allowed wealthy non-doms to transfer ownership of a company to an offshore trust, which could then sell the company while avoiding capital gains tax.
In his ruling, the judge said ‘the defendants had a contractual duty to advise the claimant that non dom status carried with it potentially significant tax advantages’. He likened this duty to refer a client to a tax specialist to that of a GP’s duty to refer a patient, in that if a professional knows here might be possible types of treatment known only to specialists, then that triggers a duty to advise.
The judge described the BWS as a ‘tax mitigation’ scheme, noting that ‘the main reason for creating the trust would be to enable the client to receive the capital ... tax free’.
Harben Barker is appealing against the judgment.