This lengthy case considers the obligation on accountants to advise clients of tax planning opportunities even if not specifically requested to do so by the client.
What follows is a summary of the key issues raised -during the case.

Background

The taxpayer, who was born in Iraq, built up a clothing business in the UK which he merged with the similar business of a friend in February 2003. Subsequent to that they sold their shares in the merged business, Bank Fashion Limited (“BFL”) for about £22 million in April 2005. The taxpayer's share of this disposal was £8,508,586.50 and his liability for Capital Gains Tax (“CGT”) on this sum was 10% of that figure. The case concerned the steps which the taxpayer claims that his accountants should have advised him to take in order to eliminate or to reduce this liability.

The case for the taxpayer was that:

• The long-standing retainer of the accountants included an obligation to advise and to assist him in relation to his personal financial and tax affairs, including identifying and advising of possible methods by which he could minimise his tax liability. This included giving CGT tax-planning advice relating to the proposed sale of his shares in BFL without being expressly requested to do so.
• Any reasonably competent Chartered Accoun-tant would have considered his non domicile status (“non-dom”), and advised that this status carried with it very significant tax advantages.
• He should have been told to obtain tax advice from a firm of accountants or tax advisers who specialised in dealing with non-dom individuals. The taxpayer further contended that he would then have been advised to enter into a Bearer Warrant Scheme (“BWS”) as this was a tax-saving programme only available to non-doms. He would have accepted this advice and been able to enter into a BWS before the UK government introduced blocking legislation for such schemes in early March 2005. As a result of entering into the scheme he would have saved the large amount of the CGT which he had to pay on the sale of his BFL shares by virtue of the failure of the accountants to advise him to seek such specialist advice.
• In consequence of the accountant's failure to refer him to a non-dom specialist, he entered into another scheme known as a Capital Redemption Plan (“CRP) at substantial cost. This scheme subsequently failed resulting in him incurring penalties and substantial interest for late payment.

Each of those contentions was disputed by the accountants. Their main defence was that:

• They were not obliged to give tax-planning advice unless they were expressly asked to do so;
• They were not required to advise on obtaining tax-planning advice from a non-dom specialist;
• Even if that advice had been given, the taxpayer would not have gone ahead with BWP because of the warnings about it which he would or should have been given by the non-dom specialist;
• In any event, the taxpayer could not have effected BWP before the blocking legislation took effect; and that
• In any event, he would have been worse off as a result of implementing BWP than if he had just paid the CGT.

Decision

Finding in favour of the taxpayer, the High Court found that the accountants erred by failing to advise the taxpayer to take the advice of a non-dom specialist. The taxpayer was awarded £763,658.00 in respect of the CGT he had to pay excluding credit for the sums that he would have had to pay if he had embarked on BWP. He was also awarded the cost of entry to the scheme of £180,000, a sum in respect of interest charged by HMRC including the cost of borrowing money to buy tax certificates and interest as appropriate.

In reaching this decision, the Court found that the engagement with the accountants extended to advising and assisting the taxpayer even when not requested to do so. The accountant's duty was to use all proper skill and care to give tax-planning advice on that occasion so as to reduce or eliminate his liability to pay CGT on the sale of his BFL shares even though not requested to do so.

The Court's decision did not suggest that all accountants were expected to be tax experts, the Court stating that “no criticism is made of the fact that the Defendants as generalist accountants were not aware of BWP” but the accountants in this case were “reasonably competent generalist accountants” and therefore “had a contractual duty or concurrent tortious duty to advise” the taxpayer to get advice from a tax specialist.

The full text of the case is available at http://www.bailii.org/ew/cases/EWHC/QB/2013/1500.html