Levelling the playing field - the options for reforming protection for tax advice in the United Kingdom: lessons from other jurisdictions

The United Kingdom (UK) is typical of many common law jurisdictions at present, in that the revenue authority (HM Revenue and Customs) has extensive powers in Schedule 36 of the Finance Act 2008 (Schedule 36) to inspect buildings and obtain information coercively, with one of the significant constraints on this power being the right of a legal adviser or client to claim the protection of the doctrine of legal professional privilege (LPP) in appropriate cases under paragraph 20 of Schedule 36.\ud \ud Unfortunately, this does not assist accountants and other non-lawyer tax advisers, because the recent UK Court of Appeal case of R (on the application of Prudential Plc) v Special Commissioners of Income Tax [2010] EWCA 1094 (Prudential (CA)) has confirmed that the protection of LPP is limited to tax advice provided by lawyers and does not apply to (the same ) tax advice when given by accountants or other tax advisers, though there appears to be a developing groundswell of support for such an extension. Indeed, Lloyd LJ, in his concluding comments in Prudential (CA), stated that while he agreed with the observation by Charles J in the High Court - that it was "not easy to see" why the logic underpinning LPP should not also support the application of a similar privilege to accountants and other tax advisers who were not legally qualified – in his Honour's view, it was not for the courts to extend the scope of LPP to non-lawyers, as this could only be done by Parliament.\ud \ud While paragraph 20 of Schedule 36 applies the full protection of LPP to tax advice from lawyers, paragraph 25 (Schedule 36) provides only very limited protection when the same advice is given by tax advisers who are not lawyers. This substantial disparity in the level of protection for the very same tax advice - which is based solely on the status of the advice giver - creates an uneven playing field between the legal and accounting (and other) professions.\ud \ud This differential protection has been characterised as an "unfair penalty" on those seeking tax advice from an accountant rather than a lawyer¹ and has created direct competition and sometime tensions² between the professions. It could in some cases cause a client to choose a lawyer rather than an accountant for advice on tax issues.\ud \ud Accordingly, the authors believe it may be timely for the UK and other jurisdictions to consider introducing legislation to "even out" the protection for advice from accounting and other non-legal tax advisers. This process could draw guidance from the approaches taken in the two foreign jurisdictions referred to in Prudential (CA) – New Zealand and the United States - as well as proposals currently under consideration in Australia.\ud \ud This Paper seeks to analyse the pros and cons of these alternative systems, and to draw out some possible guidelines which might assist other jurisdictions to develop an appropriate system. For convenience, comparisons have been drawn with the UK system, but the insights gained are generalisable