Press Release

27 August 2009

 

HMRC gets new powers to seize legally privileged documents - HMRC worried that the Courts will extend the privilege to tax advice given by accountants


HMRC has gained new powers to seize documents from taxpayers which could be legally privileged (http://www.hmrc.gov.uk/briefs/brief5409.htm).


The new powers to seize documents form part of new dispute resolution rules which, according to law firm McGrigors, are weighted heavily in HMRC’s favour. HMRC gained wide-ranging powers to carry out site inspections at businesses in April. If a dispute over legal professional privilege arises during the course of an inspection, HMRC now has the power to seize the disputed documents, which involves the documents being placed in a sealed container, which HMRC takes custody of until the dispute is referred to the Tax Tribunal for resolution.


Jason Collins, Partner, at tax litigation law firm McGrigors, comments:


“These powers are very wide ranging and will be viewed as an attempt to erode the principle of legal professional privilege which is at the heart of our legal system. HMRC has never liked the fact that the advice taxpayers have taken from barristers and other lawyers may be protected by legal professional privilege, and they routinely mount an aggressive challenge over how far the privilege extends.”


“Why should HMRC be able to take custody of documents which taxpayers claim are legally privileged where no allegation of any wrongdoing has been made? Until a tribunal has ruled otherwise, disputed documents should stay in the possession of taxpayers. If HMRC can simply remove documents before a judgment has been made, many taxpayers will feel that the odds are already stacked against them. This ‘bagging and tagging’ measure is unnecessary and heavy-handed and more akin to tactics used in a fraud raid.”


“Until now there has never been a statutory procedure for resolving disputes over whether documents are subject to legal professional privilege. The system which has been put in place is unfairly weighted in HMRC’s favour and will result in many more confidential documents being subjected to scrutiny.”


“This is part of HMRC's ongoing clampdown against legitimate tax planning. It wants to get access to the advice that taxpayers are getting from their professional advisers in order to scupper any tax planning schemes before they get off the planning table.”


In a case brought by a major financial services company and a Big 4 accountancy firm, the Courts are currently considering whether to extend the privilege to cover tax advice given by accountants, not just advice given by lawyers - and these new powers are seen as an attempt to limit the effect of such a ruling. 


“HMRC is now facing the very real prospect that the Courts may decide that the current restriction of legal professional privilege to advice given by lawyers is unlawful and discriminatory, and that advice given by accountants should benefit from the same protection. Since the majority of tax advice in the UK is given by accountants, the creation of new powers allowing HMRC to challenge legal professional privilege claims is possibly an attempt to pre-empt that forthcoming ruling which could otherwise put a lot tax advice from accountants out of HMRC's reach.”

Andy Peat

Business Development Director
Telephone: +44 (0)20 7054 2710
Mobile:  +44 (0)7894 835 386
Email: andy.peat@mcgrigors.com

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