Friday, October 15, 2010

Prudential case confirms no Privilege (LPP) for accountants

Accountancy Age have published my comments on the Prudential judgement that was handed down by the Court of Appeal this week. Here's what I said:

I’ve long thought it unfair that lawyers and accountants are subject to different rules when advising clients on tax matters. The distinction relates to the facility afforded by the rules of Legal Professional Privilege (LPP).

LPP is a common law right that has developed over the past 400 years. It is intended to ensure that anyone can seek advice in confidence about their legal rights and obligations and in particular advice about litigation or potential litigation. Where LPP applies the lawyer is not required to report or pass on the information shared with them with any third parties (eg: the police or HMRC). LPP also permits the client to refuse to disclose documents or answer questions, and to require the adviser and others so to refuse as well.

The problem is that this rule only applies to legal advice provided by a qualified lawyer. Not when provided by accountants or tax advisers.

The Prudential case, heard by the High Court last year, decided that LPP should not be extended to other professionals who provide advice on tax matters, in particular accountants. The Court rejected Prudential’s appeal even after accepting that accountants are the main providers of advice of a taxation nature. The Court had little discretion here due to a 1985 Court of Appeal decision on a similar issue (allbeit involving patent agents). So the Prudential appealed.

The ICAEW, quietly supported by the CIOT, intervened and set out arguments for the Court to consider in reaching its decision. Unsurprisingly though, in my view, the Court of Appeal has determined that LPP only applies to lawyers. I admire the ICAEW’s attempts to persuade the Court that the rule should be extended. Legal advice no doubt confirmed that such an attempt was worthwhile. And the members would have been delighted by a successful outcome.

I’m no lawyer so may be accused of naivety in such matters. But my gut feeling throughout was that there was no prospect of success. I take no pleasure in finding out I was right. I could see no circumstances in which the Court would, effectively, extend the range of advisers who could help tax cheats escape prosecution. For that would be the outcome if the rule of LPP were extended.

Clearly it’s wrong that different rules apply to lawyers and accountants when advising on the same issues. It’s also wrong that tax cheats can secure advice from anyone with the protection of LPP. But of course our legal system requires the assumption of innocence rather than guilt – until proven. And that’s why the Courts consider LPP to be “a fundamental condition on which the administration of justice as a whole rests."

It’s not easy to see how the unfairness can easily be resolved. However, let’s assume, for a moment, that the rules are changed and that accountants (chartered or otherwise) can claim the protection of LPP as regards their advice. There is another key difference between lawyers and accountants. The former are trained in legal analysis and interpretation. The latter are not.

Of course plenty (but not all) accountants have an in depth understanding of tax law. But that’s only one aspect of the legal system. It hardly qualifies accountants to emulate lawyers in the interpretation of wider legal principles such as LPP and to properly understand when it does or does not apply. The ICAEW’s failure to persuade the Court to extend the LPP rule may be a blessing in disguise.


  1. Mark, the key phrase in this is "qualified lawyer".

    Until people can stop becoming "accountants" by merely calling themselves an accountant, it is surely right and proper that LPP cannot be claimed by a completely unregulated bunch of people.

    Did ICAEW pursue the issue that only those qualified accountants governed by their respective institutes should be given LPP?

    This is not a "get at the QBEs" issue but certain areas need to be more tightly regulated than others.

  2. Sorry for not replying to this comment sooner Vaughan.

    Yes, ICAEW was indeed only focusing on the fully qualified chartered accountants.