Should An Accountant Be Liable For Failed Tax Avoidance Schemes For Clients?

Tax avoidance is a hot topic in the UK with the Starbucks, Amazon and Google’s tax affairs presenting challenges for the economy here in the UK. The Court of Appeal recently overturned a decision which made an accountant liable for a failed tax avoidance scheme he set up for a client.In the original dispute, Hossein Mehjoo had developed an extremely successful business in the UK after coming here as an Iranian refugee. As a result of this successful business, Mr Mehjoo faced a large tax bill and sought advice from a local accountancy firm about how to reduce his liabilities when selling his business.

His business was sold for over £8 million and as a result, Mr Mehjoo faced a tax bill of £850,000. He tried to avoid his tax liabilities by investing £200,000 into a tax avoidance scheme, which failed. As a last resort, he sued his accountants for professional negligence and won his case in June last year, resulting in the accountancy firm owing over a million pounds in compensation to Mr Mehjoo.
The case hinged on the fact that the accountancy firm did not advise Mr Mehjoo to use the Bearer Warrant Scheme (BWS) back in 2005. The accountants argued about the ethical issues of this scheme, which was indeed shut down by HMRC later on that year.

The accountants, Harben Barker, decided to take the case to the Court of Appeal, with the support of the ICAEW, who are the professional body which represent accountants. It took 9 months to get to trial in the Court of Appeal and accountants everywhere are now breathing a sigh of relief as the original decision has been overturned.

At the Court of Appeal, the judges ruled that the accountancy firm were not in breach of their duty to Mr Mehjoo and therefore could not be found professionally negligent.
Mr Mehjoo is considering an appeal to the Supreme Court and this ruling should clarify the position for accountants when dealing with borderline ethical issues with their clients.

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