Underprivileged Accountants

No legal professional privilege for non-lawyers

In January of this year the Supreme Court declared that legal professional privilege (LPP) should remain the domain of the legal profession. The ruling followed the Prudential's attempt to bring legal advice given by accountants within LPP. 

LPP affords a client the freedom to hold open and candid discussions with their lawyer, safe in the knowledge that such discussions and any related advice will not have to be revealed to a third party. There are two aspects to LPP:

Legal advice privilege

This covers confidential communications between a lawyer and their client where the main purpose is the seeking or giving of advice. 

Litigation privilege

This protects confidential communications between a lawyer and their client and between either of them and a third party, the main purpose of which is to be used in relation to actual or awaiting litigation. 

Documents protected by LPP cannot be required for production in the courts and tribunals. It therefore follows that a taxpayer cannot be forced to comply with a Sch. 36, FA 2008 notice that requires documents protected by LPP.  A taxpayer can waive their right to LPP and will be encouraged to do so by HMRC within the wording of the Sch 36 notice which may well say, 

“You do not have to produce documents or provide information for which you can successfully claim legal professional privilege but you can choose to waive privilege. It may assist progress of the tax position check if you do but you would be giving up your right to keep the information or documents private. It may help us to complete our check if you do.”

Background to case

HMRC served two information notices (old S.20 TMA 1970) on the Prudential requiring disclosure of documents relating to a marketed tax avoidance scheme. Some of the documents contained legal advice, provided by accountants, on tax matters. 

The Prudential contested the notices on the grounds that the documents were protected by LPP and that they did not contain information relevant to a tax liability.  Their challenge was unsuccessful before the Special Commissioners so the they sought a judicial review of both HMRC's and the Special Commissioners decisions. 

The High Court rejected the Prudential's application. Although there was some sympathy towards the Prudential the court actually suggested that legal advice privilege should be completely removed! 

Further failure was tasted in the Court of Appeal who refused permission to appeal to the Supreme Court, although the Prudential sought appeal from the Supreme Court. 

This case is not unique in the sense that it is not the first time that the courts have denied an extension of LPP to non-lawyers and so for accountants and tax advisers it's business as usual. 

FA 2008, Sch 36, Para 25, already offers the profession some comfort in that a tax adviser cannot be required to provide information about relevant communications or to produce documents which are the tax adviser's property and consist of relevant communications, the purpose of which is the giving or obtaining of advice about a person's tax affairs. 

The protection only applies however when HMRC give a notice to a tax adviser. It does not apply when the Revenue give a notice to the client whose tax position is being checked. Generally though the advice that a client has received from their tax adviser is not usually something that is reasonably required to check the tax position and HMRC will normally come to their own conclusions based on the relevant facts. 

HMRC's revised information powers have been in existence now for 5 years and the Prudential's failure to extend LPP will have no effect on the majority of accountants, tax advisers and their clients. 

By:Sam Greenwell

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