HMRC on warpath with law firm over ‘secret’ tax advice

Legal privilege has always been a major bone of cont­ention between lawyers and accountants in terms of the supposed advantage it gives to lawyers in providing advice.

The row stepped up a notch after HMRC took exception to the way that legal eagles market themselves to their clients – and now one of the country’s most prestigious law firms is on the taxman’s radar.

HM Revenue & Customs was “unimpressed” to learn Clifford Chance has effectively told potential tax clients that their tax affairs can be kept secret if they approach lawyers rather than go to accountants.

And as a portent to other lawyers marketing themselves in a similar fashion, HMRC will talk to Clifford Chance about its advertising strategy.

An HMRC insider said: “We’re well aware of this and we’re very unimpressed. There will be some developments and there will be a discussion with Clifford Chance on the way.”

The accountancy prof­ession has long decried the two-tier system, but one leading tax barrister has said the situation was a “fact of life”.

“It shouldn’t be regarded as something that’s a disgrace. It doesn’t mean that there’s anything underhand going on, it just means a full and frank discussion. It’s an essential feature of the legal profession. In the same way, we can’t give audit advice to companies,” the lawyer said.

He suggested that the ­clampdown had been made to combat individuals keeping the advice they have received before the 50% top rate of tax begins in April this year.

“There’s going to be a lot of people seeking advice and I don’t think the taxman wants this kept under wraps.”

Clifford Chance issued a client briefing last October in response to a judgment handed down in a judicial review, where insurance giant Prudential asked for legal professional privilege to be applied to tax advice given by accountants.

The judicial review con­firmed that taxpayers can only obtain confidentiality against an HMRC probe in such circumstances when the advice was given by lawyers.

Prudential is gearing up for an appeal to the ruling, which Clifford Chance predicted before flagging up its advantage over the accountancy profession in the briefing.

In the communiqué, Clifford Chance said: “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.”

Hackles have already been raised on both sides. Law Society president Robert Heslett accused the taxman of taking “a big brother approach where nothing is private, but that is not acceptable in a democratic society. Taxpayers have human rights too”.

The Law Society added it would fight any watering down of legal professional privilege, but Dave Hartnett is equally as determined to effect some change.

Ominously, Hartnett said he would crush any instances of law firms saying “bring your tax issues to us so we can ensure that HMRC can never get access to them”.

Hartnett said he couldn’t allow a distortion in the market place where a law firm was effectively saying “come to us and we’ll hide all your secrets”.­

Clifford Chance declined to comment.

IN OUR VIEW

Legal professional privilege is a basic common law right. Any person can obtain skilled advice about the law (legal advice privilege) or potential litigation (litigation privilege) on the basis that what is discussed will never be disclosed without their consent. However, the disparity with the accountancy profession must be addressed.

Further reading:

Lawyers in the dock over tax advice