Dispute could drive avoidance underground

The taxman and the lawyers are at loggerheads on the issue of legal professional privilege, but what happens if HMRC manages to bring about a change in the rules?

One leading tax adviser warns we could see aggressive tax planning driven further below the surface – the opposite of the taxman’s intentions. “You could have the situation where people would look overseas to areas where legal privilege is still held,” said Derek Allen, director of taxation at ICAS.

However Allen, like many advisers, still believes some levelling of the playing field between the accountancy profession and the tax lawyers is required. Aggressive marketing of legal privilege as a tool for providing the best tax advice would hit the accountancy profession.

“It isn’t fair if lawyers are able to take business that might otherwise come to us because of a legal oddity,” said Mike Warburton, tax partner at Grant Thornton. “I entirely agree with Dave Hartnett's sentiments on this.”

But tax advisers on the accountancy side of the fence have suggested that this could turn into a lose-lose situation for the profession.

“It’s a long running issue for accountants but it’s more likely to be a ‘levelling-down’ rather than a ‘levelling-up’,” said Richard Mannion of Smith & Williamson. “I can’t imagine the legal profession being happy about this,” Mannion added – and his forecast is right.

“Law firms are entitled to market themselves accurately and inform their clients or potential clients of their responsibilities in relation to legal professional privilege and we will protect their right to do so,” said Robert Heslett, president of the Law Society.

Heslett added the Law Society were not in talks with the taxman about this issue, so relations may be frosty between the two if Hartnett gets his way.

IN OUR VIEW

The legal profession has the natural advantage in this area because it will cite the privilege it enjoys as a key principle of its work. HMRC will consider it a major success if it pulls off a change in the law.

Further reading:

lawsociety.org.uk