Sunday, February 7, 2010

Should lawyers be exempt from disclosing their tax advice?

Accountancy Age is reporting that the taxman is set for a battle with the legal profession over lawyers’ attempts to keep tax advice confidential.

One unnamed law firm has apparently sent out a circular that says: ‘Bring your tax issues to us so we can ensure that HMRC can never get access to them’ – meaning that they think legal professional privilege does that. The taxman doesn't agree and wants to ensure that the age old concept is not used to aid tax cheats.

The concept of legal professional privilege is more complex than many people assume. However most tax advisers accept, reluctantly, that the rules apply differently to lawyers as compared with non-lawyers. And the application of the rules to lawyers seems to extend to non-lawyers who are employed by law firms. I suspect this is one of the reasons for the movement of some tax investigation specialists into law firms - the most recent example bring those who left Tenon and moved to McGrigors.

The legal and accountancy professions thus find themselves on opposite sides of the argument. Accountants want equality of treatment. But no one expects this to mean that legal professional privilege will be extended to allow taxpayers to secure privileged tax advice from accountants. Lawyers on the other hand however want to retain their exclusive rights and the Law Society has engaged a QC to argue the point for them.

The way that the rules of professional privileged apply to different professions has long been an issue. It started to become of real concern when the rules for Disclosure of Tax Avoidance Schemes were first published in 2004. As a result of challenges by the CCAB the rules were amended to ensure that 'privileged' advice still had to be disclosed albeit without breaching the rules of privilege.

Since then the issue has been bubbling away behind the scenes. I for one am pleased it is now back in the public domain. Whatever the merits of the concept of professional privilege generally surely it should not extend to tax advice which would be disclosable if provided by any other professional.

What do you think?


  1. I trust that HMRC will engage suitably qualified "QC" expertise to put this firmly where it belongs - namely tax advice is not any more privileged if given by a lawyer than it is if given by a non-lawyer. Suggesting otherwise merely encourages evading taxpayers to employ even more devious tactics to conceal their past misdemeanors. I never judge anybody but continuing this farcical situation allows the shady side of tax evasion to stay hidden - just because they have the funds available to pay high lawyers fees. No doubt some lawyer will expound the virtues of concealment

  2. Another law firm, Clifford Chance, no less, is also now reported to be stressing the distinction between lawyers and accountants. They say: “As things currently stand it would be prudent for clients particularly in high value or complex transactions to obtain tax advice from lawyers rather than accountants. Advice given by lawyers is protected by legal advice ­privilege.”