Mehjoo case gives firms greater certainty

by Calum Fuller

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26 Mar 2014

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scales of justice

THE LONG-RUNNING dispute between midlands firm Harben Barker and former client Hossein Mehjoo had threatened to have major, unwelcome, ramifications for the profession. That the whole unedifying episode is over is a source of some succour.

As for where advisers now stand, the news is about as good as it could be.

There was, not a year ago, the possibility that advisers must draw clients' attention to available avoidance schemes or refer them onto specialists - a significant shift in how tax practitioners advise their clients.

The potential clash between that and the institutes' various charters sat understandably uneasily with practitioners, especially given the ICAEW made avoidance a disciplinary issue in 2012.

Happily, this week's ruling puts paid to the potential for that contradiction to become requirement.

Instead, what it does more than anything else is highlight the importance of engagement letters at the beginning of an adviser-client relationship. Clarity from the start, advisers say, is crucial. In the case of Harben Barker - a firm of six partners - a clear delineation between vanilla tax advice and more advanced, esoteric schemes should have been drawn.

As a result, the scope of duty is narrowed somewhat, and so where a firm does not make it its business to run high-end, complex and risky tax avoidance schemes, it cannot reasonably be expected to be aware of the existence of particular, obscure structures.

Advisers note in turn that firms' risk exposure is limited, with welcome implications for their insurance premiums. Suddenly increasing the risk of small firms exposing themselves to situations such as Harben Barker's would, after all, likely see a corresponding jolt to the price of premiums.

But quite apart from anything else, the limbo of it all is over, and firms and advisers can act with far greater certainty, and that, above all, should provide more than a crumb of comfort at a time defined by, among other things, uncertainties over partnerships' status due to the incoming LLP tax changes.

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