By Kate Ison & Aude Delechat, tax dispute resolution team, Berwin Leighton Paisner
In the current tax environment, HMRC is becoming increasingly inquisitive and challenging taxpayer’s claims to withhold privileged documents from disclosure during a tax enquiry.
Currently, where there is a dispute between a taxpayer and HMRC which concerns whether a document is protected from disclosure by legal professional privilege, a procedure exists to refer the dispute to the First-tier Tribunal for determination under The Information Notice: Resolution of Disputes as to Privileged Communications Regulations, SI 2009/1916 (‘the LPP regulations’). Recently, HMRC has made frequent use of this procedure to challenge assertions of privilege by the taxpayer.
The tribunal approach: The tribunal will carefully examine each document challenged and scrutinise its contents to determine whether privilege attaches, as highlighted by two recent decisions concerning applications made under the LPP Regulations.
In Edward C Behague [2013] UKFTT 596 (TC) (reported in ‘Cases’, Tax Journal, dated 20 November 2013), HMRC challenged the privileged status of an engagement letter between the taxpayer and his solicitors, a legal report prepared by the solicitors and the schedules attached. The judge found that, although an engagement letter is not by nature subject to legal advice privilege, if parts of it set out what the legal advice sought will cover, those parts would be privileged.
He also held that the report was legal advice and, therefore, privileged. The schedules were also determined to be privileged as their disclosure would enable a person to identify the subject matter of the legal advice contained in the report.
In Lewis v HMRC [2013] UKFTT 722 (TC), as part of an enquiry into the tax treatment of a payment received by Mr Lewis on the termination of his employment, HMRC issued a notice requiring Mr Lewis to produce certain correspondence between his solicitor and former employer relating the termination of his employment. The taxpayer sought to withhold this correspondence on the basis that it was protected by litigation privilege. The judge dismissed the taxpayer’s arguments and held that litigation privilege was not available. Although the correspondence was privileged as regards any proceedings between the taxpayer and his employer in relation to the termination, it was not created in contemplation of litigation with HMRC. Accordingly, litigation privilege would not extend to prevent disclosure of the correspondence to HMRC.
Practical tips: It is now more important than ever for taxpayers to consider the rules of privilege from the outset in order to avoid sensitive documents being disclosed to HMRC. Taxpayers should adopt the following best practices to maintain privilege:
By Kate Ison & Aude Delechat, tax dispute resolution team, Berwin Leighton Paisner
In the current tax environment, HMRC is becoming increasingly inquisitive and challenging taxpayer’s claims to withhold privileged documents from disclosure during a tax enquiry.
Currently, where there is a dispute between a taxpayer and HMRC which concerns whether a document is protected from disclosure by legal professional privilege, a procedure exists to refer the dispute to the First-tier Tribunal for determination under The Information Notice: Resolution of Disputes as to Privileged Communications Regulations, SI 2009/1916 (‘the LPP regulations’). Recently, HMRC has made frequent use of this procedure to challenge assertions of privilege by the taxpayer.
The tribunal approach: The tribunal will carefully examine each document challenged and scrutinise its contents to determine whether privilege attaches, as highlighted by two recent decisions concerning applications made under the LPP Regulations.
In Edward C Behague [2013] UKFTT 596 (TC) (reported in ‘Cases’, Tax Journal, dated 20 November 2013), HMRC challenged the privileged status of an engagement letter between the taxpayer and his solicitors, a legal report prepared by the solicitors and the schedules attached. The judge found that, although an engagement letter is not by nature subject to legal advice privilege, if parts of it set out what the legal advice sought will cover, those parts would be privileged.
He also held that the report was legal advice and, therefore, privileged. The schedules were also determined to be privileged as their disclosure would enable a person to identify the subject matter of the legal advice contained in the report.
In Lewis v HMRC [2013] UKFTT 722 (TC), as part of an enquiry into the tax treatment of a payment received by Mr Lewis on the termination of his employment, HMRC issued a notice requiring Mr Lewis to produce certain correspondence between his solicitor and former employer relating the termination of his employment. The taxpayer sought to withhold this correspondence on the basis that it was protected by litigation privilege. The judge dismissed the taxpayer’s arguments and held that litigation privilege was not available. Although the correspondence was privileged as regards any proceedings between the taxpayer and his employer in relation to the termination, it was not created in contemplation of litigation with HMRC. Accordingly, litigation privilege would not extend to prevent disclosure of the correspondence to HMRC.
Practical tips: It is now more important than ever for taxpayers to consider the rules of privilege from the outset in order to avoid sensitive documents being disclosed to HMRC. Taxpayers should adopt the following best practices to maintain privilege:
