The Law Society has issued a Guidance Note for solicitors, which considers the relationship between solicitors’ statutory obligation to disclose tax avoidance schemes to HMRC and legal professional privilege.
Following a series of high profile tax avoidance scheme investigations by HMRC, the Finance Act 2004 introduced regulations requiring promoters of such schemes to disclose arrangements which enable a person to gain a tax advantage.
Subject to a series of tests, if a solicitor falls within the Act’s definition of a ‘promoter’, it is possible that they will be subject to the disclosure obligations. This has caused concern for some solicitors, who are uncomfortable about a potential conflict arising between their statutory obligations and legal professional privilege. The newly-issued Guidance Note clarifies the position by investigating the main issues which a solicitor faced with this situation must consider:
(a) whether they fall within the definition of a ‘promoter’;
(b) the particular circumstances of the matter; and
(c) whether legal professional privilege applies.
In relation to the last of these, the Guidance Note recommends that solicitors should ask themselves the following:
“whether any information that you would be required to disclose to HMRC under the (disclosure of tax avoidance schemes) regime forms part of, or would otherwise reveal, the substance or subject matter of confidential communications that have passed between you and your clients for the purpose of obtaining and giving legal advice. If the answer to that question is yes then the information will usually be subject to the privilege exception.”
If the privilege exception does apply, such information should not be disclosed unless the solicitor is aware that their client has waived the privilege.
Detailed guidance and worked examples are provided in relation to each of the tests to be satisfied if a tax avoidance scheme is to be disclosed, making the Guidance Note essential reading for any solicitor who has dealings in this area of law, and extremely useful for other professionals working in this field, such as accountants and financial advisors. To view the Guidance Note click here.