The Court of Appeal has today confirmed that legal professional privilege ("LPP") can be claimed only by clients of lawyers and not by clients of accountants even where an accountant is engaged to provide tax advice. Whilst documents brought into existence for the purposes of obtaining and giving confidential legal advice will not be disclosable where the adviser is a solicitor or barrister, the same cannot be said of documents created for or by an accountant giving tax advice.

Herbert Smith represented the Law Society, intervening in the appeal due to remarks made by Charles J at first instance suggesting that there should be a level playing field which if not achievable by extending the common law rule could be achieved by restricting the privilege for tax advice given by lawyers. The Bar Council and the Institute of Chartered Accountants in England and Wales ("ICAEW") also intervened.


Disclosure of documents, both to HM Revenue and Customs ("HMRC") and in tax litigation, enables a proper investigation of a taxpayer's liability to tax by placing before HMRC, the Tax Tribunal or the Court all of the documents that are relevant to assessing that liability. This allows HMRC, the Tax Tribunal or the Court to make a decision based on a review of all of the relevant evidence, so as to reach a just and fair conclusion.

However, the requirement for a taxpayer to disclose relevant documents is limited by LPP, a fundamental human right which is a necessary corollary of the right of any taxpayer to obtain skilled advice about tax law without fear that the information provided to their solicitor or barrister will be used to prejudice the taxpayer. Where LPP applies, the taxpayer can withhold a document from disclosure. The right to claim LPP is therefore subject to strict conditions, because its effect is to deprive HMRC, the Tax Tribunal or the Court of relevant evidence.

The issue in the case

HMRC issued information notices (under section 20 of the Taxes Management Act 1970 ("TMA 1970"), now superseded by Schedule 36 of the Finance Act 2008) to Prudential seeking documents relating to a widely marketed tax avoidance scheme. Prudential brought proceedings for judicial review, seeking to quash or limit the notices, arguing that the notices unlawfully required Prudential to disclose documents that were subject to LPP. In particular, Prudential asserted that documents by which it had sought or received legal advice on tax matters from its accounting advisor were within the scope of LPP and that the notices could not oblige Prudential to disclose such documents to HMRC. The issue to be decided by the Court of Appeal was whether confidential legal advice relating to tax matters provided not by a solicitor nor by a barrister but by an accountant could fall within the scope of LPP and therefore be protected against disclosure.

Decision of the Court of Appeal

Affirming the decision of the High Court (reported in our e-bulletin of 16 October 2009), the Court of Appeal held that it was bound by judicial precedent to hold that LPP does not apply in relation to any professional other than a solicitor, a barrister or an appropriately qualified foreign lawyer. LPP does not, therefore, apply to documents by which legal advice relating to tax matters was sought or received from an accountant.

Lord Justice Lloyd, giving his judgment with which the other two members of the Court of Appeal agreed, went on to say that even if the Court had not been bound by judicial precedent, it would have concluded that LPP at common law cannot apply outside the legal profession, except as a result of specific legislative provision.

Parliament has, on several occasions, considered whether LPP should be extended to accountants by legislation. In 1983, for example, the Committee on Enforcement Powers of the Revenue Departments (chaired by Lord Keith of Kinkel) recommended that LPP should be extended to tax agents that had been admitted to an incorporated society of accountants or the Institute of Taxation. Parliament did not implement this recommendation by the Committee, although many of the Committee's other recommendations were followed.

TMA 1970 made general reference to documents which are the subject of LPP, but made alternative and specific provision as regards the protection of documents in the hands of a tax accountant. Parliament has, therefore, legislated so as to deliberately distinguish the protection from disclosure of documents by which legal advice is sought or received from, on the one hand, tax accountants and, on the other hand, solicitors or barristers.

The decision of the Court of Appeal was significantly influenced by the uncertainty surrounding the professional regulation of accountants. In the United Kingdom, at least, there is no restriction on any person setting up business as an accountant and providing advice on any relevant matter, including tax. That person would not owe any duties to a regulator. In contrast, a person seeking to call himself a solicitor or a barrister must fulfil certain requirements and is answerable for all aspects of his professional conduct to both a professional regulator and the Court.

Since LPP is an absolute right that restricts the disclosure of relevant evidence, the rules as to its scope must be clear and certain. As Lord Justice Lloyd said:

"If it were to apply to members of other professions who give advice on points of law in the course of their professional activity, serious questions would arise as to its scope and application. To which accountants should it apply, given that 'accountant' does not by itself denote membership of any particular professional body, or the obligation to comply with any, or any particular, professional obligations? To which other professional advisers would it apply? To what areas of the law would it apply as regards the advice of any adviser who is not a lawyer as such?"

Lord Justice Lloyd concluded that these questions could only be answered by Parliament and that it would be improper for the court to provide an answer.

Departing from the judgment in the High Court, Lord Justice Lloyd did not endorse the view that this led to an unfair playing field between accountants and lawyers that could be levelled either by extending LPP to accountants or restricting LPP for lawyers. The scope of LPP as regards advice received from solicitors or barristers is unaffected by this decision, i.e. all advice from a solicitor or barrister as to what a taxpayer ought prudently to do in the relevant legal context will be privileged against disclosure.

Relevance of the decision

Whilst the Court of Appeal considered only the relevant provisions of TMA 1970, the decision will also apply to information notices issued under Schedule 36 of the Finance Act 2008. Like TMA 1970, the relevant provisions of that Schedule distinguish:

  • "communications as between client and professional legal adviser" to which a claim to legal professional privilege can be claimed (at paragraph 23), which are absolutely protected from disclosure;
  • communications with tax advisers (at paragraph 25), which are protected from disclosure where a notice is served on the tax adviser but not where the notice requiring disclosure is served on the taxpayer or a third party.

On receipt of an information notice or in tax litigation, taxpayers will be required to disclose documents produced by or for their tax accountants to HMRC to the extent they are relevant to the request. LPP remains available for documents seeking or receiving legal advice in relation to tax matters from a solicitor or barrister so that such documents will not be required to be disclosed to HMRC on receipt of an information notice or in tax litigation.

Impact of the decision

It is not yet known whether an application will be made for leave to appeal to the Supreme Court, and if applied for, whether it will be granted. Any taxpayer that has claimed, in relation to an Information Request, that documents contain either a request for or advice from a tax adviser who is neither a solicitor, barrister or qualified foreign lawyer should maintain that position until the case has been finally determined.