Who would be a tax advisor these days?
Anyone following reports in the media will have noticed tax advisors getting a bashing for the ‘morally dubious’ practice of giving clients tax advice. Well, now comes a story of a tax advisor being sued because he DIDN’T give tax advice!
In a court of appeal ruling made on 5 June in the case of Mehjoo V Harben Barker (a firm), the judge said that accountancy firm involved should have told their client about an offshore tax avoidance scheme.
Mehjoo, was an Iranian refugee who built up a multimillion-pound fashion business in the UK and was trying to save tax after selling it. In 2005, Mr Mehjoo paid £200,000 to enter an aggressive tax avoidance scheme run by a provider introduced to him by Harben Barker.
The tax avoidance scheme failed and so Mr Mehjoo sued Harben Barker claiming the firm should have given him better tax planning advice. In his judgement, Mr Justice Silber said that a ‘reasonably competent’ accountant would have recognised that Mr Mehjoo was non-domiciled and so could have entered tax avoidance schemes not available to ordinary UK citizens.
The judge even suggested which scheme Mr Mehjoo should have been advised on, referring to a scheme called the Bearer Warrant Scheme (BWS) which, until the law was changed in 2005, allowed wealthy non-domiciled individuals to transfer ownership of a company to an offshore trust, which could then sell the company and avoid capital gains tax.
The judge drew parallels with a GP’s duty to refer a patient to different types of treatment known only to specialists and awarded Mr Mehjoo £1.4m damages, according to reports in the media.
So, there you have it, a court ruling that seems to suggest that accountants have a duty to advise wealthy clients of options to avoid paying tax!
As a footnote, Harben Barker have (unsurprisingly) lodged an appeal against the judgment and we must await developments.Talk to Barnes Roffe today