The England & Wales Court of Appeal has overturned a High Court ruling in in which an accountancy firm’s client was awarded damages against the firm because it had failed to advise him about a tax planning opportunity. The earlier decision caused some controversy and also generated quite a lot of publicity as it seemed to mean that practitioners had a contractual duty to help clients avoid tax by any legal means.

The case concerned an Iranian businessman, Hossein Mehjoo, who retained his Iranian domicile of origin for UK tax purposes. He had previously successfully sued Harben Barker for £1.4m after the firm failed to recommend he use an offshore tax avoidance scheme – known as the Bearer Warrant Scheme (BWS) – in order to reduce his CGT bill.

However, the Court of Appeal ruled that such a decision was not “sustainable” since Harben Barker “were not and had never held themselves out to be specialist tax planners”.

This is from the ruling:

“The reasonably competent accountant setting out to advise Mr Mehjoo of the tax consequences of the sale would not, in my view, have been under any obligation to raise for discussion the claimant’s domicile unless it was relevant to the CGT liability on the disposal. The accountant would have known that it gave Mr Mehjoo no tax advantages in relation to the sale of the BFL shares unless the situs of the shares could be changed. As this was something which HB neither knew or could have been expected to know was achievable, there was no reason to mention the matter still less a liability in negligence for not having done so. Although not in any sense conclusive, it is not insignificant that none of the other firms of specialist tax advisers whom Mr Mehjoo subsequently consulted suggested he should consult a non-dom specialist or raised the possibility of using a scheme like the BWS. None of them has been sued in negligence.”

One final point.  It is not clear if this ruling completely removes the presumption of an accountant’s contractual duty to help a client avoid tax.  The judgement it seems is based more on the fact that Harben Barker could not have been expected to know that their client, as a non-dom, could have switched the situs of the shares without triggering a CGT charge.

The full case report can be found here.