I have a rather boring relationship with my accountant, I tell him how much money has come in and he tells me how much I have to give to the nice men at the Revenue; not for me the complex off-shore trust or some other interesting tax minimisation vehicle. As such I’ve never received (or asked for) advice relating to the legality of any particular tax avoidance scheme. If I did though, what would be the status of the legal advice received from an accountant about the legality or otherwise of any particular tax vehicle? Does such advice, legal in nature, fall under the protection of legal advice privilege (LAP)?
This question was considered earlier in the year by the Supreme Court in R ((Prudential plc. & Anor) v Special Commissioner of Income Tax and Anor  UKSC 1. The appellants, Prudential plc. had entered into a tax avoidance scheme that was notified to HMRC. The Revenue issued a section 20 notice under the Taxes Management Act 1970. In R (Morgan Grenfell & Co) v Special Commissioner of Income Tax  UKHK 21, it was held that a section 20 notice does not require a person to disclose documents to which LAP applies. In short, Prudential’s position on appeal was that they did not have to disclose documents relating to legal advice they had received in relation to their tax position irrespective of whether that advice came from accountants or lawyers, the advice being covered by LAP. The Revenue, of course, disagreed arguing that any advice provided by accountants could not be covered. Given that accountants give as much, if not more, tax advice than lawyers the implication of the question are enormous.
The Supreme Court, by a majority of 5:2 (Lords Sumption and Clarke dissenting) agreed with the Revenue and refused to extend LAP beyond its currently understood limits. I think it’s fair to say that there was some reluctance by the majority in reaching this decision, Lord Neuberger noting that the:
“argument for allowing this appeal is a strong one, at least in terms of principle … LAP is based on the need to ensure that a person can seek and obtain legal advice with candour and full disclosure, secure in the knowledge that the communications involved can never be used against that person. And LAP is conferred for the benefit of the client, and may only be waived by the client; it does not serve to protect the legal profession. In light of this, it is hard to see why, as a matter of pure logic, that privilege should be restricted to communications with legal advisers who happen to be qualified lawyers, as opposed to communications with other professional people with a qualification or experience which enables them to give expert legal advice in a particular field.”
However, despite “the powerful arguments advanced to the contrary … [the Court decided not to] extend LAP to communications in connection with advice given by professional people other than lawyers”. It was felt that the consequences of extended LAP would lead to a clear and well-understood principle becoming unclear and uncertain: how for example should a court determine which professionals would be covered by LAP? Further, the majority felt that the question of whether an extension of LAP was justified raised questions of policy that should be left to Parliament.
I would be amazed if there was time in this Parliament for any debate about this issue, and so, for the time being at least LAP remains the sole preserve of lawyers, notwithstanding the powerful and principled arguments in favour of an extension. The decision was greeted by a general groan from accountants and other professionals who give legal advice and whose communication with clients remain disclosable to third parties.