Robert Newey & Co

Get in touch today: 020 7407 9434

News and Articles

How far is HMRC's power to gather data limited by legal privilege?

13th February 2017

Under the Finance Act 2011 ("FA 2011") Her Majesty's Revenue and Customs ("HMRC") can gather data. They can do this to "assist with the efficient and effective discharge of their tax functions".

The Law Society (which is basically the trade union for solicitors) understands that HMRC plan to issue notices under FA 2011 to a number of trust and company service providers. Notices will seek:

  • The name and address of any client seeking to create an offshore entity;
  • Details of the offshore entity; and
  • Details of persons with beneficial ownership or interest in the entity and the nature of the benefit or interest.

The Law Society understands that, among other firms that set up trusts and companies, about a dozen law firms may receive these notices. (This figure is taken from a report in the Financial Times.)

The question arises whether the data that HMRC are seeking are covered by legal professional privilege ("LPP").

One type of LPP is legal advice privilege. This basically protects confidential communications between a client and a legal adviser for the purpose of giving or obtaining legal advice or assistance on the client's rights and liabilities and what should prudently and sensibly be done. Where contact details are given to a solicitor in confidence with the express purpose of giving and receiving legal advice, those details are themselves subject to legal privilege.

A solicitor or law firm cannot waive LPP - only the client can do this. A lawyer has legal and professional duties of confidentiality and would always be cautious about giving information to a third party. (There are already special rules for situations such as money laundering.)

It is interesting to note that there is no specific exception for LPP under FA 2011. This contrasts with enquiry powers given to HMRC under the Finance Act 2008, where a specific exception is spelt out. Possibly the thinking was that a general data gathering power would not infringe on LPP in the same way as enquiries into individuals.

HMRC maintain that the data that they seek are not covered by LPP, because they relate to "transactions" rather than "advice". The Law Society, on the other hand, believes that LPP is very likely to be engaged. At first sight it does look as though the data that HMRC want may well be covered by LPP.

The Law Society notes that it is a matter of settled law that, when a balance is to be struck between competing public interests, predominance is to be given to LPP. It has told HMRC that it will vigorously defend and protect LPP by all possible means, including litigation.

The policy behind legal advice privilege is to protect the right of a client to seek legal advice. There is no sign that HMRC are seeking to challenge this as such. They are, however, exploring the limits of the principle. There are already circumstances - such as money laundering - where a solicitor is required to make a disclosure to the authorities. It seems likely, though, that HMRC may continue to seek to explore the limits of the principle of legal advice privilege in the context of taxation. It will be worth watching to see whether HMRC back down and how the Law Society get on with protecting the position of clients.


Back to Articles