Legal professional privilege (LPP) protects the fundamental right to obtain confidential legal advice. Tax advice may be given by solicitors, barristers, accountants, chartered tax advisers (or even by the unqualified). At present, only lawyers qualify for full LPP. It is suggested that LPP should either apply to all tax advice, or none. The Court of Appeal in the Prudential case considered that any extension is a matter for statute, and to date Parliament has not responded - the Legal Services Act 2007 extends LPP to certain activities conducted within MDPs, but not tax.
Does the availability of LPP to lawyers giving tax advice make such a difference? LPP does not confer such extensive protection as is often thought - it only covers advice sought by a client, so does not extend to “marketed” schemes. Also, clients surely will seek advice from the person they think best qualified to give it; LPP would not and should not be a primary factor in their choice. The relative sizes of the tax practices in law firms and accountants would seem to suggest LPP is not unduly constraining client’s choice of adviser; tax advisers within the accountants have knowledge of their clients’ businesses, through their audit and compliance roles, that few lawyers enjoy.
The principal concern about HMRC being able to access advice is that HMRC will use the advice to identify weak points or as a fishing expedition; however, in a market more sensitive to aggressive tax planning, if a structure has such a significant weakness that it would be a concern if HMRC become aware of it, it must be questionable in any event. Furthermore since transactions and structures are now discussed, certainly between the larger corporates and HMRC, in a much more open manner, a taxpayer will be likely to have to discuss the matter “warts and all” with HMRC in any event.
Why should LPP remain for tax advice given by lawyers? First, whilst advice and litigation privilege are different, the borderline between the two may not be clear, and the need to have confidential advice as a matter approaches litigation must be paramount. Second, as an exception to the rule requiring full disclosure between parties to litigation, LPP must have clear bounds; for some legal advice only to qualify would breach this requirement. LPP remains a fundamental right that should be available to persons seeking advice from a lawyer, on whatever topic.
In conclusion, I would suggest the issue is best addressed by three self denying ordinances – which would seem unobjectionable; HMRC should not seek to gain access to advice as a short cut in challenging transactions; the Courts should not require disclosure of advice except in exceptional cases (for example, where the advice impacts the commerciality or objectives of an arrangement), and, finally, if any lawyers are using LPP as a marketing tool they should desist - it is a privilege which belongs to their clients, not to them.
Louise Higginbottom, Partner, Norton Rose
