It has been reported that a West Midlands Accountancy firm has been sued by the High Court for £1.4m in damages due to them failing to advise a client of the availability of tax avoidance strategies.
The businessman (Mr Mehjoo) took his accountants to court on the grounds of failing to advise him to join a particular tax scheme, which was later shut down by the HMRC but at the time, was available and was effective in mitigating Capital Gains Tax (CGT) liabilities. The businessman had sold his business and realised an £850,000 tax bill which he attempted to mitigate via another scheme, which failed.
The basis of his argument was that his professional advisers (his accountant) had a duty to advise him of all available schemes and the opportunity to legally mitigate his potential tax liabilities. The High Court, Mr Justice Silber agreed, stating that a “reasonable competent” accountant should have been aware that, as their client was not domiciled in the UK, he had options for mitigation which would not necessarily have been available to UK domiciled individuals. The firm therefore, had a “Contractual duty” to advise the client that his domicile status conferred “potentially significant tax advantages”.
The Court considered that the firm should have advised the client to join an arrangement called the “Bearer Warrant Scheme”, where he could have transferred the company to an offshore trust, leaving the subsequent sale free of CGT. In pointing out the accountants’ duty the Court drew comparisons with the duty of a GP doctor to refer a patient to a specialist, when the ailment is clearly or potential outside of his field of expertise. “Surely, if the GP knows there might be types of treatment known only to specialists, that should trigger a duty to advise,” opined Mr Silber.
All accountants must now ask themselves whether they too are at risk of being sued. By not advising clients of the opportunities available, accountants expose themselves to losing that relationship with their client.
The risk of a negligence claim like the one above can be avoided by making clients aware of what planning is available and documenting that you have done so. As an accountant (trusted advisor) it would be expected that a client will ask for their opinion therefore making clients aware of what is available to them then they are in full possession of the facts enabling them to decide whether they wish to proceed or not.