Mehjoo v Harben Barker – Court of Appeal overturns Mehjoo Claim

The High Court case of Mehjoo v Harben Barker attracted a lot of attention both in the media and amongst accountants, regarding specialist tax advice. According to some media reports, the case meant that accountants were required to advise on complex tax avoidance schemes.  Whilst we did not originally agree that the verdict went this fact, the new decision given by the Court of Appeal should help to provide more clarity.

Background

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.

High Court Decision

The High Court originally 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.

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.

Court of Appeal Verdict

In the latest decision, it was found that there was a distinction between the type of tax planning work usually carried out by the accountants, and the circumstances surrounding this case, stating that whilst “An accountant who is retained by a client to deal with his personal financial affairs will inevitably have to point out what might be the hidden tax consequences of any particular proposal[….], routine tax advice of this kind, though an important part of an accountant’s ordinary duties, is not what this case is about.”

Lord Justice Patten hearing the case stated that Harben Barker “were not and had never held themselves out to be specialist tax planners; and had never given Mr Mehjoo advice of that sort. It is therefore surprising to say the least that from a course of conduct which did not involve tax planning, they should be taken to have assumed a positive duty to give advice of that kind.”

It was therefore found that the accountants had not been in breach of their duty and their appeal was allowed.

Conclusion

Whilst the latest decision appears to be much more reasonable, accountants should still ensure that they seek suitable specialist advice when asked to advice on complex tax matters.  Eaves and Co have a wealth of experience dealing with such cases, and would be delighted to hear from you.

VAT Exemption for Tournament Fees – A Bridge Too Far

The first-tier tribunal has ruled that Bridge is not a sport and as a result tournament entry fees are not exempt from VAT.

The English Bridge Union (EBU) were appealing HMRC’s decision not to repay VAT on £631,000 on tournament fees raised between 30 June 2008 and 31 December 2011.

Background

Under current UK legislation entry fees may qualify for exemption where:

  • they are for entry to a competition in sport or physical education and the total amount of the entry fees charged is returned to the entrants of that competition as prizes; or
  • they are for entry to a competition promoted by an eligible body, which is established for the purposes of sport or physical recreation.

HMRC’s VAT notice Notice 701/45 provides a list of all the sports and physical activities that it believes qualifies for the exemption.

Taxpayers Arguments

The EBU argued that Bridge was a sport for a number of reasons:

– it is recognised as a sport by the Olympic Committee

– The natural meaning of “sport” is not limited to activities which principally involve skill or exertion

– Bridge is on a par with darts, croquet, billiards, flying and gliding (accepted as sports by HMRC) in that physical activity plays second fiddle to mental skill

They also argued that bridge unions in France, Holland and Belgian (amongst others) were not required to pay VAT on their entry fees.

HMRC’s Arguments

– Sport is something that involves physical activity or fitness and the European article defining the VAT exemption was intended to promote physical and mental health

– Bridge does not involve a significant element of physical activity or fitness

Tribunal’s Ruling

The tribunal concluded that the normal English meaning of “sport” involves a significant element of physical activity and stated that “sport normally connotes a game with an athletic element rather than simply a game”.

Bridge does not contain an athletic element and therefore does not meet the conditions necessary for the VAT exemption.

Implications

Some commentators have likened the case to the great biscuit/cake debate around Jaffa Cakes; however this ruling seems much clearer cut and is unlikely to garner much media attention.

The ruling should not have any wider implications other than to reinforce the definition of what constitutes a sport for VAT purposes as initially established in the Royal Pigeon Racing Association Case (VDT 14006).