Accountants’ duty to clients
The High Court recently handed down its judgement in a contractual dispute between a taxpayer and his accountant which considered in part the duties owed by a ‘generalist’ accountant. It is important to remember that the decision is based on the particular facts of the case, and also that it is under appeal so further developments are possible.
The two main points highlighted by the case generally are that practitioners should know enough to be aware of their own limits, referring to specialists where they need to, and that practitioners should keep in mind the terms of their engagement, ensuring that any ‘additional’ services are identified as such (and of course billed for as appropriate).
We should be wary of drawing too many general points from what was a private legal action with clearly defined questions put before the judge. In particular, the words of the judgement do not support the assertion that all professional accountants are under a general duty to advise on tax avoidance opportunities; in fact the judge specifically rejected the contention that the duty on the general accountant extended to understanding and recommending opportunities arising from the particular client’s non-domiciled status.
The element of the judgement which has caused the most concern is a passage where the judge considers the question ‘Did the defendants have a contractual duty or concurrent tortious duty in October 2004 to advise the claimant that non-dom status carried with it very significant tax advantages?’
While he concludes that some duty existed in this case, it is not clear whether it was contractual (part of the parties’ private arrangements) or tortious (and so applicable to any accountant, regardless of the other terms of their contract). It may be significant that the judgement later considers whether a potentially non-domiciled client should have been referred to a specialist, and at this point considers the professional bodies’ guidance on conduct in tax advice, that is, the generally applicable rules. A possibly notable omission in that section of the judgement is any analysis of whether a non-dom would be better or worse off than a ‘normal’ client; the duty is simply to refer where a client’s characteristics exceed your ability to advise.
The subsequent discussion of whether the client in this case would actually have taken further advice and implemented structures available at the time is highly dependent on the facts of the case. The taxpayer and his accountant had a long and otherwise successful relationship, with proactive advice on tax planning opportunities expected, and given, both before and after the transaction giving rise to the dispute.
Against this background of ongoing conduct the judge was prepared to disregard the terms of a ‘standard’ engagement letter issued by the accountant’s firm which purported to exclude any duty to give tax advice, and this is one of the key points members should bear in mind. If you give your clients a legitimate expectation that you have assumed a duty to give certain types of advice, you cannot try to hide behind contradictory historic documents to avoid liability.
In practical terms, it might shed some light to consider some alternative scenarios to an aggressive accountant advising a clearly tax averse client. It seems entirely consistent with this judgement that an accountant could assume a duty to advise on tax liabilities generally, but to agree with the client that any ‘planning’ or ‘structuring’ would be in line only with published HMRC guidance and clear and specific reliefs granted by statute, and that the client would not expect to be advised of specific schemes which are known to be under challenge from HMRC on basic principles.
This would of course not remove the overriding professional liability to refer a client with unusual characteristics beyond the adviser’s competence to a specialist, but it would then be entirely in keeping with the spirit of the parties’ agreement to refer to a specialist operating on similar terms.
The other scenario is one where the adviser does regularly draw his client’s attention to available reliefs, schemes and opportunities beyond the basics required to complete a valid return – but on every occasion identifies that piece of advice specifically in billings (whether actually charged or not) as additional to ‘normal’ services.
Again, failing to refer to a specialist where the client’s underlying characteristics require it would be a failure of duties to the client, but omitting to flag any given potential advantages which those characteristics might bring or allow for would not be a breach of the parties’ agreements.