Accountant must pay nearly £1m after giving negligent advice
An accountant must pay £943,000 damages to a client after giving him negligent advice about saving tax during the sale of a business.
The case involved a successful entrepreneur who was in the process of selling his company for £8.5m. He was liable to Capital Gains Tax (CGT) on 10% of that figure.
He engaged an accountant to help him reduce his tax liability. The businessman was Iranian and did not live permanently in the UK. His non-domicile status could have enabled him to reduce his CGT liability. The accountant knew about the non-domicile status but didn’t make use of it.
Instead, he advised that the client should enter a capital redemption plan. This approach failed and the client had to pay CGT plus penalties and interest for late payment. He sought to recover his losses from the accountant.
The court found in favour of the client. It held that the accountant was obliged to consider the client’s best tax position and give appropriate advice. There was an obligation to use all due skill and care in giving that advice.
The accountant should have advised the client that non-domicile status carried potentially significant tax advantages and that he should take tax advice from an adviser who specialised in helping non-domiciled individuals.
He failed to do so and as a consequence the client entered into tax arrangements that did not meet his requirements and failed.
The client was therefore entitled to recover his losses of £943,000.