Are you at least ‘reasonably competent’?

There’s an interesting discussion on AccountingWeb as to whether an accountant could be held to be negligent for not advising clients about ‘advanced tax planning’ (ie: tax avoidance strategies).

As I explain when I present sessions on How to avoid tax related negligence claims, the standard of care to which you will be held is that of a ‘reasonably competent accountant’. I also stress that there is more to this than simply having a good defence.  You really want to avoid the claims being made as it’s a rotten process to go through – even if you are exonerated at the end.

Assume for a moment that an (ex) client alleged that their accountant had been negligent for not mentioning certain ‘advanced tax planning’ ideas, what would that claimant need to evidence to win their claim?

1 – That the accountant owed a duty of care – the client/accountant relationship probably satisfies that.

2 – That there was a breach of that duty of care (I’ll come back to that in a moment); and

3 – That the client has suffered a loss as a direct result of that breach.

As indicated above, the defence would be that the the accountant did nothing less than a reasonably competent accountant would have done. Is it a breach of the duty of care to choose NOT to mention ‘advanced tax planning’ ideas? in my view it is not (in general). And I say that in the capacity of someone who has acted as an expert witness in cases involving the alleged professional negligence of accountants.

In my view there is a material difference between ‘everyday’ tax planning, that most decent accountants would address and ‘advanced’ tax planning ideas.

Of course, if a client’s circumstances changed materially, (eg they stood to realise an enormous capital gain) or they ASKED for more sophisticated advice and did not get it then a claim might subsequently succeed. However the client would need to prove that there was a ’scheme’, technique or facility by which they could have reduced their tax bills and that they would have been prepared to undertake the necessary transactions and pay the related fees. If they can prove that THEN there might be a case against an otherwise reasonably competent accountant.

Although not completely beyond doubt it is important to appreciate that a reasonably competent accountant probably complies with the Guide to Professional Conduct for those working in tax. It’s the same Guide for all of the professional bodies. It includes a requirement to seek expert support or help if clients want tax advice that goes beyond your comfort zone. If an accountant chooses to not give the required advice rather than outsource it they could be held to be negligent.