How tax advisers can be negligent
Andy Keates reviews cases where clients have sued their tax advisers for providing negligent tax advice, in the light of a new dispute involving PwC and a former client.
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The real learning point in all these cases is that such risk can be easily managed via an engagement letter. If Wilde & Partners had expressly excluded tax advice from their LoE all would have been well. I would expect PwC's standard LoE to have lots of limitation/exclusion clauses. In Mehjoo the advisor's problem was scope creep i.e. there was no proper LoE for the specific advice.
So it is not the law of tort, but the law of contract that is important in these advisor/client negligence cases (unlike where, say, a lender sues an auditor re the borrower's accounts, where it's tort).
Absolutely spot on reply..., my standard letter of engagement states accounts plus tax returns , and any further work is by written agreement and will be itemized on the fee note
Ps i dont use icaew template , its a yawn, they are living on a different planet , i feel sure any judge would say the terms are totally incomprehensible to any ordinary small businessman ..just my view
Agree with you regarding complicated letters of engagement and the possible views of a judge if tested in court. I want my clients to read them and agree them so I make sure they are clear, short and in simple language. Trying to cover every conceivable angle undermines the content.
I agree that the templates provided by the governing bodies aren't suitable. Do you mind me asking, how do you go about ensuring your engagement letter covers everything and keeps up to date? Do you use a third party or grow your own?
We grow our own - 2 page LOE plus 2 page TOBS but I often find myself worrying that I have missed something!
The extent of scope creep in Mehjoo was essentially a half hour meeting between Mehjoo and the tax partner at Harben Barker where the suggestions made were mainly for CGT roll over such as EIS. As expert witness for Harben Barker I attempted to explain to the judge that this was rather different from a high risk artificial offshore tax avoidance scheme involving bearer warrants but my evidence was largely dismissed. It is often overlooked that this case was first heard in Queens Bench rather than Chancery. Without intending any disrespect to the judge, by his own admission he found some of the tax concepts difficult to follow. Fortunately at Appeal we had a judge who was particularly well equipped both to appreciate the intricacies of the tax system and the way accountants operate in practice.
Why's there a picture of a jury for an article concerning civil litigation? You might just as well have got the stock gavel photo out!
Our LofE are adapted ICAEW ones.
Our STOB are very adapted ICAEW ones, which we have added to over the years including some terms from a USA lawyers ones... they run to 14 pages, so we can read them.
If ever you need them they are your first line of defence only and are there to slow down whoever is attacking you.
A decent solicitor will break through these but have taken some wounds on the way and you can spend months/years arguing about these which will wear out your opponent.
The most important thing is what you have done (or not done) and what you can prove you have done and not done.
Verbal evidence.....what you say you have done is not worth a candle.
Written evidence... this is what it's all about.
Time recording - a log of everything that you have done will help.
Comprehensive real-time notes of every single telephone conversation and all meetings with clients can save your professional life.
This sounds like great advice. Reminds me of a semi-retired older partner in a firm I worked in. He had a A4 page-per-day diary into which he wrote everything - by which I mean everything. He showed me a page once that included "had a sandwich at my desk for lunch". He told me that he had been involved in a significant issue once that went to the High Court and which hinged on conflicting statements. He told the judge that he had it all written down in his diary. Judge read the contemporaneous notes and held for the partner's side.
Let's hope that members of the legal profession and other legally-recognised conveyancers advise those of their clients who are selling UK property to seek advice from members of the tax profession so as to ensure those clients, where appropriate, file the relevant return and pay any related tax liability, both due within 30 days of the completion date relating to the property sale.
Even if the lawyer's LoE excludes tax advice, surely it is incumbent on the lawyer, and morally the right thing to do, to 'flag up' that a return may be due within 30 days of the completion date together with any resulting tax liability .
Hmmm. Not sure i agree with Justin Bryant that "Such risk can be easily managed via an engagement letter". It's a tad more complicated than this in my experience.
Although it's many years since I acted as an expert witness the basic principles are unchanged. I once acted as an expert in a case where a dual qualified ACA CTA had failed to give pretty obvious tax planing advice to a sub-contractor client. He sued and the defence argued there was no obligation to provide any advice as the engagement letter was clearly only for tax compliance work.
The judgment confirmed that there was a reasonable expectation that such a service should include basic tax planning advice = especially given the CTA qualification on the headed notepaper.
In fact even if the LoE had explicitly stated that no tax advice would be given this might have been struck out as an unfair contract term.
And in the Mehjoo case, where the LoE said no advice would be given, the accountants were found to have gone beyond the terms of the LoE. They had provided advice on occasions and therefore it was reasonable for the client to expected them to give advice in the matter under dispute.
One fundamental issue to keep in mind is what would a reasonable competent accountant or tax adviser have done. If you have done that then you will rarely be deemed negligent.
I wrote at length for AccountingWeb about the Mehjoo case at the time:
https://www.accountingweb.co.uk/tax/hmrc-policy/mehjoo-v-harben-barker-l... and later in subsequent comments on a later piece here:
https://www.accountingweb.co.uk/tax/hmrc-policy/appeal-court-overturns-p...
Mark
I naturally read your commentary on Mehjoo at the time and appreciated your comment that my reputation was redeemed somewhat by the Appeal court judgement. My eight days in the witness box was certainly longer than usual.
It was indeed a very unusual case. It was heard in Queens Bench before a judge who was usually involved in criminal cases. Hossein Mehjoo was taking the action against Alan Purnell who had been a very good friend of his for many years. They played squash together and dined at each others homes. While Alan was giving his evidence I was sitting in court with his wife. She simply could not comprehend that Alan's friend could be behaving in this was towards her husband. She was clutching a picture of their granddaughter just to help keep a sense of reality. I was so pleased for her and Alan that justice was finally done.
Mike