In July 2013 I highlighted the case of Mehjoo v Harben Barker in which the High Court concluded that a firm of accountants was obliged to advise its clients about the availability of sophisticated tax avoidance schemes. It struck me at the time that this case sent mixed messages about the propriety of tax avoidance more generally; a subject which continues to generate controversy for UK PLC.Now, The Court of Appeal has unanimously overturned the High Court’s judgment.
Mehjoo’s Chief Complaint
It will be remembered that Mr Mehjoo’s chief complaint was that his accountant had not advised him of the possibility that he might have avoided a capital gains tax liability of around £800,000 if he had first succeeded in establishing that he was non-domiciled for UK tax purposes. If his case had stopped there it would have been unremarkable and would probably not have been appealed. The trouble with Mr Mehjoo’s case was that it was not only dependent on establishing that he was non-domiciled but also required proof that he would (and could) have successfully established a sophisticated bearer warrant tax avoidance scheme through an offshore trust company.
Court of Appeal’s Conclusion
In essence, the Court of Appeal concluded that an accountant retained by a client to deal with his personal affairs (including tax) was not necessarily required to direct that client towards specialist tax planning advisers. As I said in my early blog, there were big and interesting legal and moral questions at stake as to the extent of tax avoidance which is legitimate either for individuals or for large corporations. One wonders to what extent these issues may have been present in the minds of the Court of Appeal judges in concluding that it was not reasonable for non-specialist accountants either to know about such schemes or to advise their clients to seek specialist non-domiciled tax advice.
The Court of Appeal decision will be of some comfort to professional advisers but may also resonate further with those who do indeed offer specialist tax advice. It may just be coincidence but since the High Court’s original decision, in July 2013, The Department for Business, Innovation and Skills (BIS) published a discussion paper ‘Transparency & Trust: Enhancing the Transparency of UK Company Ownership and Increasing Trust in UK Business’ July 2013.” Amongst the proposals are steps to make more transparent who owns shares in UK companies. One of the key proposals to achieve this is the abolition of bearer shares.