Accountant to pay £1m in Mehjoo case

A High Court judge has ruled that chartered accountant, Alan Purnell, must pay a former client more than £1m in relation to tax charges levied by HMRC after he was placed into an offshore tax scheme that failed.

In the case of Mehjoo v Harben Barker the former firm director advised his client Hossein Mehjoo to invest in June 2005 in a non-dom tax scheme that was then widely used by accountants and operated by tax consultants Montpelier.

The scheme cost £200,000 to enter, but by keeping funds in the scheme Mehjoo was able to avoid paying capital gains tax when he sold his interest in retail business Bank Fashion for £8.5m in April 2005.

The court heard that...

Continued...

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Comments

Liability of adviser

Shay Daly | | Permalink

This is tough not just on the adviser herein but on the rest of us in terms of the cost of P.I. for the next few years.
That said,the client is entitled to be correctly advised.In this case it appears that he had to pay CGT without mitigation or did the judge give him the benefit of paying less based on using an appropriate scheme for limiting his CGT

Is this case settled or still ongoing?

Duncan Cameron | | Permalink

I'm confused. You start by saying the case is settled and end by saying that Harben Parker are appealing. Which is it?

Also I understand that Mr Mehjoo's complaint that he was not steered in the direction of tax planning suitable for a non-dom rather than that he was.

 

As a small practitioner this

Andy Davis | | Permalink

As a small practitioner this verdict simply reinforces the view that we should not be advising clients at all in the more technical areas of tax avoidance.

It is impossible for any accountant, however well informed, to have a complete knowledge of all of the potential tax structures available in the market, and indeed whether the providers of these solutions are reputable.

The only way to approach this is to educate clients that such solutions are available, make sure they are fully aware of the potential risks (In particular from HMRC), and then allow them to make thier own decision about whether a particular solution is for them.

Accounting groups such as AVN, 2020, Peak Performance etc can help the process, as they can offer a number of solutions, and have a more detailed knowledge of the marketplace, but even taking this route it should always be made clear that you are not providing advice in this area 

Tim Robinson's picture

Personal Liability?

Tim Robinson | | Permalink

So does the liability for this fall personally on Alan Purnell, as implied by the article?

Correction

chicken farmer | | Permalink

Mehjoo did not invest in a 'non-dom' avoidance scheme, that was the problem. He invested in a capital redemption scheme which failed and claimed that he should have been referred to a non-dom specialist who, in turn, would have recommended the non-dom scheme. This would have converted his UK shares into an overseas asset prior to sale and, provided the proceeds were not remitted to the UK, would have escaped CGT.

The problem faced by Purnell and his firm was that they did not appear to be aware that such a scheme was available.

Correction

chicken farmer | | Permalink

Mehjoo did not invest in a 'non-dom' avoidance scheme, that was the problem. He invested in a capital redemption scheme which failed and claimed that he should have been referred to a non-dom specialist who, in turn, would have recommended the non-dom scheme. This would have converted his UK shares into an overseas asset prior to sale and, provided the proceeds were not remitted to the UK, would have escaped CGT.

The problem faced by Purnell and his firm was that they did not appear to be aware that such a scheme was available.

Yes, but...

Vaughan Blake1 | | Permalink

A number of points seem to have been glossed over here:

1)  What were the terms of engagement of Wenham Major in the saga?

2)  Did MTM offer products other than the appropriately named CRP scheme?  Was there not an obligation on them to "fact find" and ascertain the most suitable product?  Someone (not clear whom) had obviously initially approached them for "tax planning advice".

3)  The deal to sell the company looked doubtful in March 2005.  By the time it looked more certain the BWS had been closed down.  Would the claimant really have risked a "dry tax charge" (love this phrase!) under those circumstances given the timing and uncertainty?

4)  My understanding is that if the BWS scheme had worked, Mehjoo would now have all his proceeds locked up in an offshore trust and be unable to remit them to the UK without a substantial tax charge.  Instead, he now has the same benefits of a BWS without any of the drawbacks!

5)  What would have happened if Mehjoo had used the BWS scheme and HMRC had closed it in such a way that it would have not worked for him, but the CRP scheme still worked?

A far from clear cut case and well worth an appeal.

tax on selling a practice to a newly formed limited company

woody12 | | Permalink

If a sole practitioner sells his buisness to a limited company of which he is the director. He pays 10% tax on the sale then draws down the money the new company owes him “tax free” as he draws the loan down. If he then sells the company for the same money as the company bought it , is Tax due again on the sale ?

slipknot08's picture

not 100% accurate...

slipknot08 | | Permalink

http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/QB/2013/1669.html&query=mehjoo&method=boolean

The 1st defendant was Harben Barker (the unincorporated firm, so Alan Purnell could have faced a personal liability); the 2nd defendant was Harben Barker Ltd (the successor entity).

In addition to the tax judgement (the claim against the 1st defendant should be dismissed; Judgment by the claimant against the 2nd defendants for (approx.) £1.19m; plus some other matters), the costs hearing proceeded as follows.

  • The 2nd defendant, despite creative arguments that the claimant had failed to beat the Part 36 offer, is liable for indemnity costs from 12/10/12 (the date the part 36 offer expired).
  • Because there were various issues over points which possibly shouldn’t have been argued, failures to disclose, etc, the Judge’s final order was that that the 2nd defendant should pay 95% of the claimant's costs on a standard basis up to 12/10/12, and on an indemnity basis thereafter with interest at 10% above base rate, such costs to be assessed if not agreed. A rate of 2% above base (mid-way between the parties’ Counsel’s submissions) was agreed for the period before 12/10/12.
  • The claimant asked for indemnity from GT’s costs: the judge’s starting point was that the material that was disclosed was highly relevant as it was inconsistent with the stance of the expert on various important matters. The judge concluded that the claimant was entitled to this indemnity.
  • In reaching a decision on an interim payment, the judge found it ‘extraordinary’ that the costs of the claimant were so large (about £4.995m!) in relation to the claim which was for about £1.2 million.
  • Various information had not been provided and the judge wasn’t best pleased, but he nevertheless awarded £1.7m as an interim payment.
  • Separately, the question of a stay pending appeal was considered – the judge did not make a stay order, and stated that he did not regard the Claimant as obliged to give full security for the judgment debt and the interim costs. The judge was clear that he did not envisage that the claimant should be required to sell any property if he did not wish to do so.
  • The 2nd defendant wanted the time for lodging an appeal extended until 31 July 2013 because of the “need to file many documents”. The claimant disagreed and the judge decided that the time for appealing his order should be 21 days after the judgment was handed down.