In the Chancellor’s 2018 Budget, new criteria were introduced in relation to Entrepreneurs’ Relief (ER)…
MEHJOO: If you don’t want to get sued,
know what you don’t know!
“Everybody is ignorant, only on different subjects”. Will Rogers’s remark may get you out of some sticky situations, but ignorance is no defence if a client chooses to sue you for something you should have known or – more accurately – should have realised that you didn’t know.
The recent case of Mehjoo v Harben Barker  EWHC 1500 (QB) has highlighted this point and the subsequent dangers for accountants in general practice.
The details of the case
The case concerned Mr Mehjoo, a client of Harben Barker, and the latter’s failure to advise him on tax avoidance, leading to their being sued for over £1m. As a result of a sale of his business, without any planning, Mr Mehjoo’s CGT liability would have been just over £850k. Harben Barker introduced him to a scheme provided by a third party that was intended to remove this liability; this subsequently failed (surprise, surprise!). However, there was another scheme that was available to non-UK domiciled individuals that Harben Barker did not make Mr Mehjoo aware of that, had he used it, could have potentially removed his liability.
The court decided the following:
– Even though there was no specific retainer in place for Harben Barker to provide ad hoc advice, they had an obligation to do so, even if not specifically asked. Note, this arose because of the specific facts, particularly the long-term relationship between the client and accountant and on historical practice, i.e. it reflected the reality of their relationship.
– Harben Barker should have realised that Mr Mehjoo was potentially non-UK domiciled and therefore that this could have led to tax opportunities, and therefore they were under an obligation to seek the advice of someone who specialises in non-UK domiciliary issues.
Consequently, Harben Barker had to pay Mr Mehjoo the tax plus interest, plus £200,000 of fees that were incurred on the failed scheme.
Possibly, but the bottom line is that, if you do not make your client aware of potential tax savings, they may have the right to sue.
Life is more complex than ever before and our tax system reflects this, having to consider international issues, new technology, and the subsequent plethora of ways to live your life.
Add to that the numerous weapons built by the Government since the above events to blow the artificial tax schemes industry to smithereens, with a behemoth about to be released to clear up its remnants, and you’re left with a minefield of legislation for the accountancy profession to deal with.
But surely you can’t be expected to know everything? Well, the Mehjoo case would suggest otherwise, or at least to know what you don’t know and seek help.
So what can you do about it?
It is therefore essential that, where you are not comfortable with a particular area of taxation or it is a specialist topic, you should seek the advice of a suitably qualified professional. For example:
– Do any of your clients pay for their children’s schooling or university fees? If so, they could be missing a trick by not avoiding income tax on the amounts used to pay the fees.
– Are any of your clients non-UK resident? The new statutory residence test is complex, but provides certainty and should therefore be considered in ensuring none of your clients end up inadvertently breaching the rules and becoming subject to UK tax on their worldwide income.
– Could you have saved your client inheritance tax on their estate? Did you discuss their exposure here and whether they wanted to do anything about it?
– Have any of your clients invested into an unquoted trading company? Or are they seeking an investment into their business? You should be aware that the Enterprise Investment Scheme could be relevant.
The above are all areas in which we specialise, amongst others.
If you believe they apply to any of your clients, please contact either myself or Nicky and we will be glad to help. By referring work to us, we can provide the following benefits:
– we are happy to pay commission (which most larger firms would not do);
– we do not carry out everyday accountancy work, so will also need your services from time to time;
– you will get peace of mind that your client is being looked after and will be paying much less than if they were referred to a larger firm, whilst getting a one-on-one service;
– you won’t get sued for not knowing something!
Of course, we don’t know every area of taxation, but know what we don’t know and can refer you to other advisors that will know, who we trust.
If you have any queries, please don’t hesitate to contact us on 01730 711271 / 07889 541959 or via email on email@example.com.