The recent High Court case of Mehjoo v Harben Barker has attracted a lot of attention both in the media and amongst accountants, regarding specialist tax advice.
According to some media reports, the case means that accountants are required to advise on complex tax avoidance schemes, but the reality is slightly more subtle than that.
Mr Mehjoo was born in Iraq in 1959 and his parents were of Iranian origin. His accountants were aware of this background as they had acted for him for a number of years, including his first tax returns in the 1980s.
The case therefore revolved around whether the accountants had been negligent in failing to notice his non-domicile status and the impact this would have on his UK tax position on making a gain. The case found that a reasonably competent accountant would have known it was important to consider Mr Mehjoo’s domicile status in the context of his tax affairs.
In October 2004 his accountants considered the CGT position on Mr Mehjoo selling his shares in a company. Neither the firm’s general practice partner, nor the tax partner appeared to have considered the non-domicile status or the impact this could have.
The accountants claimed that they were not required to give tax planning advice due to the terms of their engagement letter, unless they were specifically asked to do so. This was found to be not the case, in part due to the fact that they had provided such advice on a number of occasions without express instruction.
The judge therefore found that the accountants had been negligent in not considering the fact that Mr Mehjoo was non-domiciled, and that as this was outside of their area of expertise, they should have sought specialist tax advice or advised Mr Mehjoo to do so himself.
Tax is complicated, and the ever increasing tax legislation means it is harder than ever to keep up-to-date. The key message for accountants is that they need to know enough to know that there is a problem, and seek out relevant specialists to assist. Please feel free to contact us if you feel you may need specialist tax advice for your clients.