Lawyers in the dock over tax advice

The taxman is set for a battle with the legal profession over lawyers’ rights to keep advice to people with tax issues confidential.

Dave Hartnett, HM Revenue & Customs’ permanent secretary for tax, told Accountancy Age he was aiming to clamp down on lawyers hiding behind legal professional privilege and the confidentiality it brings to attract clients.

According to Hartnett, lawyers are flagging up in marketing letters that the advice they provide will be kept private because of legal rules, a situation he said must be stamped out.

Every day we are seeing something new in tax avoidance and tax evasion - new ideas in the tax profession for products that are offshore,” said Hartnett.“

I was looking only the other day at a circular that had gone out from a law firm, basically saying to people ‘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. We don’t agree.”

The issue came to the fore last year when insurance giant Prudential lost a High Court battle against the taxman in which the insurer attempted to have accountants’ advice made confidential under Legal Privilege laws.

The taxman’s new offensive on the legal profession comes in the backdrop of that success. “It’s pretty worrying if a law firm is going to advertise on that basis. I think we’re going to have to clamp down,”said Hartnett.

“I don’t think we can have that sort of distortion in the market place where a law firm is going out there and effectively saying ‘come to us and we’ll hide all your secrets’.”

The Law Society told Accountancy Age it would fight tooth and nail to prevent any change. “It appears that HMRC wants to take a big brother approach where nothing is private, but that is not acceptable in a democratic society,” said Law Society president Robert Heslett. “Taxpayers have human rights too. The society will fight against any watering down of legal professional privilege.”

Heslett said legal professional privilege was a fundamental human and democratic right and should remain a cornerstone in the administration of justice. Lawyers’ statutory protections were unchanged in the Finance Act 2008 when HMRC’s new compliance powers were introduced, he stressed.

He also aimed a shot at accountants, saying the relevant legislation “quite properly does not protect the advice given by others who are not officers of the court to the same extent.”

“If that is to change it is up to parliament or the courts to make that decision, not HMRC. 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,” Heslett added.