Failure to Advise on Tax Planning may be Negligent? – Hossein Mehjoo v Harben Barker
Update Spring 2014 – The Court of Appeal has found in favour of the accountants confirming that they did not act negligently on the basis that Harben Barker were not “under any duty to advise the claimant of significant tax advantages which, to their reasonable knowledge, did not exist”.
Update Summer 2013 – case of Hossein Mehjoo v Harben Barker to be appealed. See our recent blog for more information http://pdtaxconsultants.wordpress.com/2013/06/24/hossein-mehjoo-v-harben-barker-negligence-appeal/
In the recent case of Hossein Mehjoo v Harben Barker, the client successfully sued their accountant for over £1 million after the High Court ruled that the failure of the accountant to advise on tax planning in relation to a sale of shares amounted to negligence.
This case may seem difficult to reconcile given the recent discussions regarding the morality of tax avoidance.
However, the key point is not that accountants should be aware of or indeed promote tax planning schemes but that they should recognise where specialist tax advice is required and should refer them to tax specialists where necessary.
A firm of accountants had been engaged to act for Hossein Mehjoo over a number of years and provided both general accountancy/tax compliance as well as some ad hoc tax planning advice.
Hossein Mehjoo was of Iranian descent and the accountant was aware that he was likely to be considered non domicile. However the accountant failed to advise Hossein Mehjoo that his non-dom status could give access to specific non-domicile tax planning opportunities such as a “Bearer Warrant Scheme” (BWS).
It was accepted that the accountant was a general practitioner and did not have any specialist non-dom knowledge. Whilst the judge did not criticise the accountant for not being aware of the BWS, he found that “a reasonably competent accountant would have recognised that, as a non dom, Mr Mehjoo was eligible for tax schemes not available to ordinary UK citizens.”
Therefore the accountant should have mentioned the possibility of non-dom planning to Hossein Mehjoo and if necessary involved an adviser with experience in this area.
This could be contrasted with the case of Swain v Mills & Reeve in which the Court of Appeal held that Mills & Reeve had not been negligent in failing to advise that the sale of shares shortly prior to an operation after which Mr Swain died, would lead to adverse inheritance tax consequences through the loss of Business Property Relief (BPR).
In the Mills & Reeve case, the advisers were only made aware of the heart operation through being copied into a string of emails in which the heart operation was mentioned lower down in the string ie a communication of the point not specifically for their attention. The accountant in the Hossein Mehjoo case was well aware of his client’s non-dom status.
BWS & Non-Dom Tax Planning
For an overview of the bearer warrant scheme and current tax planning for non-doms please got to http://pdtaxconsultants.wordpress.com/2013/06/12/non-domiciled-tax-planning-bearer-warrant-schemes-bws-hossein-mehjoo-harben-barker/