Tax avoidance obligations

The UK court of Appeal has ruled that general accountants are under no obligation to advise clients to enter aggressive tax avoidance schemes.

Hossein Mehjoo came to Britain from Iran at the age of 12 and was granted asylum in 1982. After a successful career as a professional squash player, he set up a successful clothing business, Bank Fashion, which he sold for £8.5 million in 2005.

The sale generated a capital gains tax bill of £850,000, which Mr Mehjoo tried to avoid by paying £200,000 to Montpelier, an offshore avoidance scheme. When the scheme failed, Mr Mehjoo sued his accountants, Harben Barker, for not proactively advising him on methods by which he could aggressively mitigate his tax liability.

Last June the courts caused consternation among accountants and other professionals when they ruled in Mr Mehjoo’s favour.

Overturning that decision recently, the Court of Appeal was quoted as saying that they found it “surprising to say the least” that the lower court had held that accountants had a “positive duty” to offer “specialist tax planning”.

Caroline Cunnington, comments “In the Mehjoo case the Court of Appeal has made the point that specialist tax advice is not the role of a generalist accountancy firm. This point has a wider resonance in that detailed advice should always be sought from a specialist in their given field”.

If you would like assistance in tax planning or the sale of your business, please call Caroline on 01775 725664 or email caroline.cunnington@chattertons.com.