Each year accountants go through the same process of renewing their Professional Indemnity insurance, which covers areas giving clients taxation advice.
Volunteering advice beyond the terms of an engagement letter can land professionals in hot water after an accountant was found liable for giving negligent tax advice not requested by his client. The case was overturned on appeal but the lessons are still there to be understood and the facts of this case should not be ignored.
The case of Hossein Mehjoo v Harben Barker
This case has implications for all professionals. It illustrates the risk of assuming responsibility for giving advice which has not been requested and the obligation on professionals to identify the need for specialist advice that they are unable to provide.
Mr Mehjoo brought a claim for £1.4 million in unpaid tax, penalties and interest against his accountant Harben Barker after he unsuccessfully attempted to avoid paying £850,000 in Capital Gains Tax on the sale of his shares in a fashion business. He claimed that his accountant failed to direct him to an appropriate non-domiciled tax specialist who would have advised him on an appropriate tax avoidance scheme.
Harben Barker argued that it was not obliged to give Mr Mehjoo tax planning advice unless they were expressly asked to do so, nor were they obliged to advise Mr Mehjoo to obtain tax planning advice from a specialist.
The court found in favour of Mr Mehjoo. It decided that there was a clear understanding between Mr Mehjoo and his accountant that it was required to consider Mr Mehjoo’s tax position even where the advice had not been specifically sought. The relationship between Mr Mehjoo and his accountant had developed over 20 years from originally completing annual returns to latterly advising on all aspects of Mr Mehjoo’s business and personal financial affairs. The judge decided this progression constituted a variation from the terms of a retainer letter dated 1999.
This case is a warning of the significance of conduct on the scope of a professional’s retainer and therefore how careful professionals have to be to avoid giving advice beyond the terms of their retainer. The key is to make sure that not only is there an express written agreement between the professional and client defining the extent of advice to be offered, but also that the firm operates ongoing protocols and audits to manage staff, projects and client accounts. Risk management needs to apply regularly throughout the process, and not just at the inception of a client relationship.
For a fixed price, our qualified and experienced partners will audit your tax advisory processes and advise on how to avoid getting into professional indemnity insurance claims by giving advice that you may not be insured to give or not giving advice that you may an obligation to give.