Chapter 2 Fuller implementation of existing legislation – Probate
Question 6 - Is the procedure set out at Schedule 9 to the Courts and Legal Services Act 1990, under which the Lord Chancellor may add to the list of ‘approved bodies’ whose members should be regarded as qualified to provide probate services for reward, sufficient to ensure there is adequate protection for consumers?
In principle the CIOT supports any move which enables properly qualified tax advisers to provide probate services. Tax advisers already carry out much of the work in connection with a deceased person’s estate (for example, tax returns and inheritance tax calculations) and this would be a natural extension to the work already undertaken.
In our view the requirements of Schedule 9 would be adequate to ensure the technical competence of the practitioner with the PII cover and complaints procedure acting as further safeguards. Over the years the CIOT has introduced a number of measures to protect consumers of tax services provided by Chartered Tax Advisers. These are very similar to those outlined in Schedule 9 and include
- setting high technical standards in the professional examinations,
- requiring members to undertake continuing professional development annually,
- requiring members in practice to take out professional indemnity insurance cover
- setting up an independent body to deal with complaints.
Without being complacent we consider that these steps have managed the risk to the consumer without stifling the legitimate professional activities of our members. Chapter 4 Legal Professional Privilege
Question 41 – Is there any evidence that accountants and tax advisers might be – or are, in practice – disadvantaged by the doctrine of legal professional privilege?
Before setting out our detailed comments we should like to make some general observations. It is the view of the CIOT that legal professional privilege should extend to all legal advice given by suitably qualified professionals, such as Chartered Tax Advisers. We recently held a seminar “Confidentiality, Privilege and the Tax Adviser” at which we explored the issue. It was the view of our speakers, who included eminent human rights and European law specialists, that there was a legal basis for asserting such a right. Even under the common law, the analysis of the House of Lords in the case of R v Special Commissioner ex parte Morgan Grenfell supports the view that the rationale for the common law right could now apply equally to professionals other than lawyers. We would be pleased to set out our reasoning in more detail if it would be helpful.
Our comments below should therefore be read taken in the context of the CIOT’s view that discrimination is only one of a number of important reasons for extending legal privilege to professionals such as Chartered Tax Advisers.
There are three points which we wish to make
- Reluctance to consult a tax adviser
It is a fundamental human right that when taking advice a person should in no way prejudice his position. Under current law in the United Kingdom a member of the public may only claim legal professional privilege in respect of the advice (including any documents created) if he has sought that advice from a lawyer (i.e. a solicitor or barrister).
However, this can present difficulties for taxpayers who may wish to take advice from a tax adviser who is not a solicitor or barrister. Members of the public may wish to take advice for a variety of reasons - for example:
- to decide how to treat a particular source of income or capital in their tax return for the purposes of determining their tax liability;
- to reorder their affairs so that they are arranged efficiently for tax purposes;
- to defend themselves in the face of attack by the tax authorities if their tax affairs are under enquiry or investigation.
In all of these cases a tax adviser, whether or not he is a lawyer, will be well placed to give sound advice to the taxpayer on the best course of action in the context of the relevant law. In our view this is legal advice, whether or not given by a lawyer.
It is unfair that a taxpayer would only be protected by legal professional privilege if he consulted a lawyer.
- The taxpayer is being restricted in from whom he may acquire advisory services where he requires to be protected by legal professional privilege
- Accountants and Chartered Tax Advisers are being discriminated against in the market place as potential service providers to the taxpayer.
For example, this can present difficulties for taxpayers who are under investigation by the Inland Revenue or Customs and Excise. Tax advisers can work together with their client with a view to resolving the investigation and ensuring that the correct amount of tax is paid. However taxpayers are often reluctant to instruct tax advisers in such circumstances especially if at risk from criminal prosecution. Instead the taxpayer will often look for guidance and support from a legal adviser where he can make a claim for legal professional privilege. It is difficult to compile evidence of this as much of the work will be directed straight to lawyers without the involvement of tax advisers but the tax investigations departments of many firms can offer anecdotal evidence.
- Constraint on acting as an advocate
The rules on legal professional privilege constrain the tax adviser when he is instructed to represent his client, acting as an advocate, before a VAT and Duties Tribunal or the Commissioners of the Inland Revenue. Chartered Tax Advisers have rights of audience before these courts of first instance. However, there is doubt whether advice and documents created by them are properly protected by legal professional privilege when preparing for or conducting such proceedings because of the currently prevailing narrow application of the law. As a consequence, a taxpayer may be less inclined to instruct a Chartered Tax Adviser to represent him, skilled and experienced though that adviser might be.
- Confusion in applications for disclosure
The current law on legal professional privilege is particularly confusing for taxpayers where an application is made by the tax authorities for the disclosure of documents. The taxpayer is able to assert a claim for legal professional privilege only in respect of communications between the taxpayer and his legal adviser. Where both a lawyer and a tax adviser (who is not a lawyer) have both been engaged to advise on the same transaction, a situation which is not uncommon, it will appear arbitrary to the taxpayer that some documents are not protected from disclosure when others are. In addition, it can be difficult unravelling what must be disclosed to the tax authorities if there has been exchange of correspondence between the client’s lawyers and his tax advisers in putting together a transaction.
The Morgan Grenfell case has added to the confusion. The case upheld the doctrine of legal professional privilege as a reason not to disclose documents to the tax authorities. The case however was specifically concerned with the provisions of Section 20 of the Taxes Management Act 1970 which deal with lawyers’ privilege (Section 20B(8)) without commenting whether the decision also applies to the equivalent provisions (Section 20B(9)-(11) which deal with accountants’ privilege (including for this purpose a tax adviser who is not a lawyer).
Question 42 - If so, what is it about the provision of the Taxes Management Act 1970 that makes it inadequate to level the playing field?
The Taxes Management Act is deficient in that whilst, in Section 20B(9)-(11), it gives statutory protection to certain papers in the hands of the tax adviser (thus giving a level playing field between the legal adviser and the tax adviser in respect of equivalent papers) this protection does not expressly extend to those same papers when in the hands of his taxpayer client. It is contradictory that a taxpayer cannot assert a claim for the protection of legal professional privilege in respect of communications from his tax adviser (who is not a lawyer) when the tax authorities are expressly prevented from exercising statutory powers to access those same documents in the hands of the taxpayer’s adviser.
The Taxes Management Act does not recognise legal professional privilege as a concept (except in the narrow sense of Section 20B(8)) and does not expressly provide that a taxpayer may make a valid claim for its protection as sufficient reason for not disclosing a document. It should do so. It would always be open to the tax authorities to challenge the validity of a claim made.
The tax authorities should have no reason to rely on advice given to a taxpayer for the purposes of determining the taxpayer’s tax liabilities. All transactions which give rise to tax liabilities will be separately supported by primary documentation and it is these documents which are relevant to the tax authorities for the purposes of verifying tax liabilities.
Question 43 – If privilege were to be extended to communications with accountants and tax advisers, what additions to their training and code of ethics would be necessary?
The CIOT’s examination syllabus would need to be extended to cover the principles of legal professional privilege. Educational material would also need to be made available for both aspiring and existing members of the CIOT.
The CIOT’s professional code of conduct (contained in the publications Professional Rules and Practice Guidelines and Professional Conduct in relation to Taxation) would need to be expanded to give practice guidance on the operation and use of legal professional privilege. This should prevent abuse. It should be noted that the CIOT has a well established disciplinary process. The Taxation Disciplinary Board Limited, an independent body, investigates all complaints referred to it about breaches by members of the CIOT’s professional rules and code of conduct. Any failure by a member to observe the code of conduct in relation to legal professional privilege would be dealt with through this disciplinary process.
Question 44 – What Government action would you recommend, or discourage?
So that taxpayers can discuss their affairs with the adviser of their choice without prejudicing their position, we would strongly recommend that the Government:
- extends the application of legal professional privilege so that it is available to clients of tax advisers who are members of any recognised professional bodies. This will enable those professionals outside the legal profession to compete on an equal basis with lawyers;
- changes the Taxes Management Act (by inserting express provisions) so that taxpayers are able to make a valid claim for legal professional privilege as sufficient reason for not disclosing a document containing advice to the tax authorities (that is not to say that the claim should not be capable of being contested by the tax authorities to test its validity).
Such changes would be consistent with the Morgan Grenfell decision in which Lord Hoffman supported the principle that “….any person should be able to obtained skilled advice about the law. Such advice cannot be effectively obtained unless the client is able to put all the facts before the adviser without fear that they may afterwards be disclosed and used to his prejudice…”. It should make no difference whether a lawyer or a skilled adviser from another profession is the adviser and accordingly it is fair that the scope of legal professional privilege is extended.