The High Court rules that accountants have a duty to undertake tax abuse

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The Times (firewall) has reported this morning that:

The accountancy profession was thrown into turmoil yesterday after a High Court judge appeared to rule that practitioners had a duty to advise wealthy clients to avoid tax.

The case is bizarre. It revolves around Hossein Mehjoo, an Iranian refugee. He sold a fashion business in Britain and has now successfully sued his local accountancy firm for £1.4 million  claiming that it had failed to advise him of an offshore tax avoidance scheme. As the Times notes

Mr Justice Silber found that a “reasonably competent” accountant would have recognised that, as a “non dom”, Mr Mehjoo was eligible for tax schemes not available to ordinary UK citizens.

And it adds:

Mr Mehjoo, 53, should have been advised to enter a scheme called the Bearer Warrant Scheme (BWS), the Judge said. Until it was shut by Revenue & Customs in 2005, a BWS allowed wealthy non-doms to transfer ownership of a company to an offshore trust, which could then sell the company while avoiding capital gains tax.

Astonishingly it was said:

“The defendants had a contractual duty to advise the claimant that non dom status carried with it potentially significant tax advantages,” Mr Justice Silber found. The judge described the BWS as a “tax mitigation” scheme, noting that “the main reason for creating the trust would be to enable the client to receive the capital … tax free”.

And:

The duty to refer a client to a tax specialist was comparable to a GP’s duty to refer a patient, the judge said. “Surely if the GP knows that there might possibly be types of treatment known only to specialists … that should trigger a duty to advise,” he said.

As the times note:

Richard Murphy, head of Tax Research UK, said: “The time has come for the Government to protect ethical accountants. These bearer warrant schemes were based on an incredibly dubious premise — it was a load of make believe.”

I know: I knew of it. KPMG, at least, marketed it.

But the real point is that just when it is agreed that tax avoidance can be abusive and that it is morally repugnant the Court has now real it is a legal requirement for an accountant to undertake this anti-social activity, or they can be sued.

Three things follow: first, honest accounatnts nbeed legal protection. Second the scope of the general anti-avoidance rule needs to be extended to protect accountants and third it has to be made explicitly clear in law that no accountant has a legal duty to abuse the spirit of the law.

If we want an honest accountancy profession (and some of us do) then the government has to act.