- Over 1,500 legal notices issued requiring the release of documents and the provision of information on tax investigation targets
- Creates a legal minefield for accountants and lawyers who receive them
HMRC is increasingly requiring accountancy and legal firms to hand over documents and information relating to current or former clients who are the subject of a criminal tax investigation, according to City law firm RPC.
RPC says that HMRC issued 1,502 disclosure notices to professional advisers such as accountants and solicitors in the last year (to March 31st 2014)*, up slightly from 1,490 the year before.
RPC explains that the notices were issued by HMRC’s Criminal Investigation Directorate, as part of investigations into suspected tax evasion and money laundering offences.
Adam Craggs, Tax and Corporate Investigations Partner, comments: “HMRC’s crackdown on tax evasion is catching professional service firms in its crossfire.
“HMRC is becoming more reliant on the documentation and information it obtains from professional advisers when building a criminal case against taxpayers. That’s why so many accountancy and legal firms are being hit with disclosure notices, which can be very time-consuming and stressful to deal with."
Receiving one of these notices, says RPC, can create a legal minefield for professional service firms because:
- providing too much documentation or information to HMRC can put the firm at risk of a legal claim from its client
- providing too little documentation or information to HMRC can lead to criminal liability for failing to comply with the notice
- a lawyer or accountant can be required to answer questions under interview and need to know what their rights and obligations are
- some information that HMRC wants may be protected by legal professional privilege but it may not be clear-cut whether this is the case
- if HMRC’s target is ‘tipped off’ by the firm, that can lead to serious consequences for the firm
Adam Craggs continues: “It is a difficult balancing act. Professional service firms have to ensure that they comply with the notice and provide to HMRC the appropriate amount of documentation and information but also ensure they do not provide documentation and information which is not covered by the notice.
“Providing too much documentation and information may mean they are in breach of their professional duties, while providing too little could land them in serious trouble for failing to comply with the notice.
“It can be surprisingly expensive for professional service firms to comply with disclosure notices because they may have to trawl through paper and electronic files going back many years and because of the difficult decisions that have to be made in relation to what should and should not be provided to HMRC.”