When taking on a new client, it's important for professional advisors to understand exactly the services they're being instructed to provide, and even more important for the client to understand which services they aren't.
On occasion, clients who instruct a professional advisor for even very basic services may assume that planning or strategic advice are automatically included, so it's important that both parties understand exactly the scope of any engagement to avoid disappointment or frustration on either part.
In the 2012 case of McMahon v Grant Thornton UK LLP, the client sold his business at a considerable gain and was liable for a substantial capital gains tax bill. Grant Thornton has been his personal and corporate tax advisors for some years and also instructed them with regard to the company sale.
When he realised that had some tax planning had been undertaken prior to the sale then the liability could have been reduced by about £750,000, he made a claim against Grant Thornton for failing to advise him of the necessary steps to take to mitigate his tax bill. However, Grant Thornton had issued the client with two letters of engagement; one in relation to personal tax compliance services and one specifically in relation to dealing with the sale of his company. Neither of those letters included provision to offer ad hoc tax advice; in fact, the tax compliance letter specifically excluded the provision of such advice.
The case went to court and judgement was found in favour of the advisors. However, this case just serves to highlight how important it is for an advisor to be clear from the outset with a client as to the scope of the services that will be provided, and to ensure that the letter of engagement is explicit about what will and will not be covered.
For clients, it's just as important to read the letter of engagement closely before signing to ensure that they're getting all the services they expect and require.
In Hugh McMahon v Grant Thornton UK LLP  CSOH 50, a firm of chartered accountants were not found to be negligent in failing to recommend some Entrepreneurs’ Relief planning in the event of a share sale.