Generalist Tax Advice, Farming And The Importance Of Mehjoo
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The case of Mehjoo v Harben Barker 
358 has very important implications for the scope of the duty of care
clients when giving advice. The success in the Court of Appeal is a
for farm advisers but there are lessons to be learnt from this
of Mehjoo has been on the “radar”
all farm advisers including those who only “dabble” with farming
judgement was given on 25 March 2014. The case brings into question the
and responsibility of the generalist adviser in the complex world of
taxation of farms.
Farm tax is
There are a
reasons why Mehjoo impacts on
given to farming and landownership clients, not least the fact that the
agricultural tax rules are so complicated. There is a great need for
advice in the farming industry. With the value of land having increased
dramatically over the last decade together with development values
the quantum of risk has increased. This is against a background of
clients who do not want to pay for specialist advice.
The High Court
previously ruled that Hossein Mehjoo’s accountants, Harben Barker (HB),
with offices in the West Midlands, had been negligent. The Court found
since Mehjoo was very likely to be non-UK domiciled, this fact should
considered to have a bearing on the capital gains tax (CGT) liability
was faced with. It was presented HB should therefore have advised him
advice from a nom-dom tax specialist. The judge indicated that he was
not a tax
expert and that the case should have been heard by a tax judge.
concluded that had Mehjoo sought specialist advice, he would have
the Bearer Warrant Scheme (BWS) and he would have been able to avoid
the CGT on
the sale of his company. HB had failed to refer the specialist and were
therefore found to be liable in the first case.
The focus of the
would appear to be on the need for general practitioners to refer
advice where appropriate. Another key point is the need to have the
engagement letter in place that clearly defines scope in order to
adviser and provide clarity to the client. The decision of the High
overturned and there is good guidance to be utilised by all
moving forward. In the Court of Appeal, Lord Justice Patten found that
had accepted in evidence that he would not have gone ahead with the BWS
had been advised that there was a substantial risk of it being
HMRC. The judge focused on the terms of HB’s engagement letter with
since an adviser’s duty of care depended on what they had been
do. Based on the terms of its engagement letter, the firm’s obligations
provide tax planning advice were limited. This raises the question,
engagement letters been checked recently?
the earlier High Court judgement. Applying the test of the hypothetical
‘reasonably competent accountant’, he found that Mehjoo’s non-dom
not influence the CGT on the sale of his UK shares unless the
how it was (potentially) possible to change the situs of the UK
shares into overseas assets. Lord Justice Patten said: “As this was
which HB neither knew nor could have been expected to know was
there was no reason to mention the matter, still less a liability in
for not having done so.” He then went on to conclude that, in advising
about the tax consequences of selling his UK shares, the “reasonably
accountant” would not have been under any obligation to discuss
domicile status unless it was relevant to the CGT liability on the
disposal. Therefore, HB was not under any duty to advise Mehjoo “…about
significant tax advantages which, to their reasonable knowledge, did
exist.” However, the judge made it clear that the duty to refer to a
when it is relevant to do so does exist.
“Expected to know”
any farm adviser is what are they “expected to know”? Here are examples
could be considered every day tax considerations for farmers:
value claims for milk quota
grassland keep qualifies as agriculture and a trade
Agricultural Property Relief (APR) for inheritance tax (IHT) on the
IHT reliefs for the elderly farmer
farm loss claims under the hobby farming rules
basis calculation and application
be expected to know.
Duty to refer a
The above list
deemed to be specialist knowledge of farming but problems can happen in
day farm accounts which could jeopardise these reliefs, for example:
need to make the negligible value claim re quota could be overlooked
ceases to have value on 31 March 2015.
land agent could put a grass letting in for the elderly farmer which
ensure the farmer still grows the crop of grass and the accountant not
in the accounts and this jeopardises APR on the farmhouse.
farmer could move to a nursing home and nothing could be said by the
to protect IHT relief.
elderly farmer could lose capacity and no warnings of legal problems
to the family and those with the registered LPA.
fiscal basis of the 6th year loss could be
non-fiscal year ends, eg 30 September, and loss relief could be denied
basis – a new farming operation could fail to elect within the required
when starting up the business and then be “out of time” to make the
These could be
of when a general adviser has a duty to refer a specialist. The
then be asked, what are the terms of the engagement letter? What had
adviser been instructed to do?
The Mehjoo case reminds farm advisers to
ensure that all instructions
are in writing and of the importance of having the right engagement
place. The need to clearly state what the firm undertakes to provide in
of professional services is essential. When new advisory work is
new engagement letter should be produced. If there are serious changes
declining health of the farmer, a specialist should be advised if
The Court of
decision would indicate a reluctance to impose duties on advisers that
beyond what they are specifically requested, or agree, to do. The
hopefully provides support for the ability to rely on the scope of a
retainer. The case makes it clear that a generalist firm is not obliged
refer clients to specialist advisers unless there is a good and
to do so. For example, in the Mehjoo case
being aware that non-dom status opened up additional routes for CGT
or that a particular situation was complex and needed specialist
What is the scope
of the farm adviser?
How can a “good
apparent reason” to refer to a specialist be defined in farming? It
argued by the farming community that (1) to (6) above are considered to
every day farming concerns that the accountant should be able to deal
tax considerations of without the use of a specialist.
In the Mehjoo case, HB did stray from the
of their written engagement and in doing so assumed additional duties
they may not have been fully conscious. While the Court of Appeal was
satisfied that they hadn’t progressed so far as to impose a duty that
liability, this was a question of degree. When a firm holds itself out
having farm tax planning expertise, for example, the court may be more
to conclude that the farm adviser would be liable.
be motivated by the fact that the Court of Appeal confirmed that a duty
exist to refer clients to specialists where there is a good reason to
Failing to refer a client in such circumstances risks a claim that a
should have been made, eg a generalist adviser with a few farm clients
referring a specialist in difficult circumstances. There is also the
of the general adviser straying into an unfamiliar area of, for
planning for farmers and inadvertently providing inaccurate advice
the complex area of farm tax.
Many would say
what is a
good reason to refer to a farming specialist? It is hoped that the list
provided gives examples. There are arguments to say that the reasons of
created by increased values of farmland and constantly being asked
succession planning are reasons. For the farming advisers, how are they
out to clients? Most farming accountants promote themselves as
some way, particularly when winning new clients.
A large number of
farmers are resistant to pay good fees for specialist advice or for a
estate planning report. The fact that the farmer/landowner refuses to
fees or to accept the referral to a specialist and the evidence of the
be recorded by the generalist adviser.
About the Author
Supplied by Julie Butler F.C.A.
Butler & Co, Bennett House, The
Dean, Alresford, Hampshire, SO24 9BH.
Tel: 01962 735544. Email;
F.C.A. is the author of Tax Planning for Farm and Land
Professional), Equine Tax Planning
ISBN: 0406966540, and Stanley: Taxation
of Farmers and Landowners (LexisNexis).
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Article Published/Sorted/Amended on Scopulus 2014-08-01 09:08:26 in Tax Articles