Appeal court hears legal privilege case

Kashflow logo
Share this content

Advisers for accounting and legal professional bodies are awaiting a verdict from the Court of Appeal in a case that could determine whether tax advisers can claim legal professional privilege.

The appeal of Prudential PLC and Prudential (Gibraltar) Limited v Special Commissioner of Income Tax and Philip Pandolfo (HM Inspector of Taxes) follows the October 2009 decision in favour of HMRC in which judge Charles ruled that legal precedents linked legal privilege to solicitors only, and did not extend to tax advisers, even where they were offering opinions on tax law.

However, he left the door open for an appeal by noting that in the current market, firms of accountants regularly provide such advice and that there was merit in the argument in favour of a “level playing field” between the professions.

Prudential declined to comment on the proceedings, but triggered what has become a test case between the two professions when it sought a judicial review of HMRC enquiry notices. The insurance company argued documents sought by HMRC were protected by professional privilege and did not contain relevant information on its tax liabilities.

Both the Law Society and the ICAEW then sought leave to intervene in the case and presented many of the key arguments at the Court of Appeal hearing last week.

The institue’s contention is that the principle underlying legal advice privilege should apply with equal force to tax advice, and that there is no principled distinction to be drawn between lawyers and chartered accountants, who both operate under similar professional controls and ethical responsibilities.

 “The case has the potential consequence of giving anyone who describes his/her self as a tax accountant or other professional the ability to withhold vital information from bodies such as HMRC, when legal professional privilege is intended to have a very specific purpose,” warned Law Society president Robert Heslett.

Please Login or Register to read the full article

The full article is available to registered members only. To read the rest of this article you’ll need to login or register. Registration is FREE and allows you to view all content, ask questions, comment and much more.

About John Stokdyk

John Stokdyk is the global editor of AccountingWEB UK and


Please login or register to join the discussion.

22nd Jul 2010 17:29

Have either of these bodies noticed the Money Laundering Regulat

I put it gently to the ICAEW's spokesman that perhaps the institute's chances of winning were quite slim, but he said feedback on Michael Izza's blog had been overwhelmingly supportive.

But aren't the two bodies also engaged in a big symbolic fight that has been significantly undermined by the Money Laundering Regulations, which requires both solicitors and accountants to report any suspicions of criminal activity except in situations where they are advising clients on legal cases (the short version...).

I've asked David Winch and other members of the Money Laundering and Crime discussion group to come forward with their views, but feel free to add your thoughts on the subject here.

Thanks (0)
22nd Jul 2010 18:38

Detailed analysis

If we subject this to more detailed analysis (or hair-splitting, depending upon your point of view) the Money Laundering Regulations 2007 and the related provisions of s330 Proceeds of Crime Act 2002 (as amended) arguably do not affect common-law legal professional privilege.

By way of background (and being brief) the 'common law' is law which is not to be found in any statute passed by Parliament, but it is the law because everyone accepts it to be the law and it is based on time-honoured fundamental principles.  An example of common law is the offence of 'cheating the public revenue' - sometimes still used in the prosecution of tax evasion.  The 'rules' in relation to common law offences have been developed and refined over decades or even centuries of court decisions.  (Off topic, but in Scotland such non-parliamentary law is much more important than in England & Wales.  For example the Theft Act 1968 does not apply in Scotland, where theft is a common law offence.)

One of the fundamentals of the common law is that communications relating to legal advice given by a solicitor to his client remain confidential and the courts cannot oblige those communications to be revealed against the wishes of the client.  (This is sometimes misunderstood to mean that all communications between a solicitor and his client are protected, but this is not the case.)  This common law protection (and other very similar common law protections) are sometimes referred to as "legal professional privilege" or LPP.  This is something of a misnomer because the protection belongs to the client, not to the legal professional, but it's a useful shorthand terminology.

It is also the case that the MLR and s330 (as originally enacted) gave statutory protection from the obligation to report suspicions of money laundering so that a lawyer was expressly not required to report information received in the context of giving legal advice.  Technically that is not an application of common law legal professional privilege, it is a statutory exemption which has a similar impact in specified circumstances.

But the European Directive on which the MLR are based actually refers to lawyers and accountants and therefore the UK enactment did not faithfully reflect the EU Directive.  The ICAEW amongst others objected to this.  Eventually the MLR and s330 were amended to extend the statutory exemption to qualified accountants.

Now the MLR and s330 are out of step with English common law.  But does that matter?

The lawyers say that does not matter and it would be inappropriate to extend the common law privilege to cover legal advice by anyone other than lawyers.  One 'reason' for this is that lawyers are technically officers of the court and accountants are not.  (The 'proper' title of a solicitor is “solicitor of the Senior Courts of England and Wales”.)

On the other hand one could argue that accountants have a long history of serving the public interest (and not simply the interest of their client) in their role as statutory auditor under company law (and similar legislation).

Also accountants, when acting as expert witnesses, owe a primary duty to the court which over-rides their duty to their client.

So one might argue that accountants, like lawyers, recognise a wider responsibility and their clients deserve the benefit of common law LPP in relation to legal advice from either profession.

But then what about actuaries, surveyors, etc., etc.?

I rather suspect this appeal will go to all the way to the Supreme Court.


Thanks (0)
By Andy3T
23rd Jul 2010 13:00

Poor advertising

This would have been of much less interest to all concerned about LPP and the current discrimination, if certain legal firms had not decided to tout for business with statements to the effect of 'your accountant will need to disclose this to HMRC/SOCA, as lawyers we won't, so come to us'.

Where the same advice is given it is inconsistent and unfair to apply different rules to it based on the professional body to which the adviser belongs - and if a nominal loyalty to the crown is the only issue, then that could easily be dealt with by applying similar rules to the few accountants who want to be able to claim LPP.  Incidentally I doubt that accountants would use LPP widely - in practice I can't see any accountant claiming LPP without first getting a solicitor/barrister to review the advice confirm that it qualified for LPP.

An alternative to expanding LPP to cover all persons giving similar advice, would be to restrict LPP to exclude the sort of structured tax planning advice that has driven the issue onto the table, but I expect the legal profession would howl even more loudly over that sort of restriction than they are over the threat of their competitive advantage being removed!

Thanks (0)
25th Jul 2010 11:50

"a case that could determine whether tax advisers can claim lega

Emphasis being on 'could'.

It won't.

The chances of the accountants' view prevailing in this case are low. But even if they won, it would not open the floodgates to allow tax advisers/accountants to claim legal professional privilege.


Thanks (0)