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

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

HMRC "unimpressed" by law firm Clifford Chance highlighting legal privilege in its marketing to potential tax clients

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.

Clifford-chance-letter-540

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

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