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UK's HMRC Can Continue Attacks On Tax Planning Schemes

by Robin Pilgrim,, London

21 October 2009

The UK's HM Revenue and Customs (HMRC) will continue to have unrestricted access to advice taxpayers have received from their accountants following a landmark High Court ruling, according to McGrigors, the leading commercial law firm.

The ruling in a case brought by Prudential will mean advice given by accountants on tax planning schemes will have to be disclosed automatically to HMRC, and may not be withheld on the grounds that it is legally privileged information.

McGrigors says that this ruling means HMRC will be able to continue to aggressively challenge tax planning schemes.

Jason Collins, Partner at McGrigors, comments: “This ruling will come as a big disappointment to the accountancy firms and I expect that leave to appeal will be sought.”

“While a tax planning scheme rarely stands or falls by the advice it is built on, knowing the thinking behind it can make it much easier to challenge in the courts. The commentary and advice from accountants will often point out why certain tax planning arrangements might not work and discuss potential weaknesses in a proposed scheme, so from HMRC’s perspective getting access to this advice can save huge amounts of work. There may also be embarrassing commentary which can harm the taxpayer’s case.”

“The ruling reinforces the slightly odd inconsistency that tax advice from a law firm is subject to legal privilege but the same advice, if received from accountants, is not afforded similar protection. Whilst this is probably justified by the different regulatory regimes in which lawyers and accountants operate, taxpayers might view this inconsistency as unhelpful as it impacts on which type of advisor they choose to help them arrange their affairs tax efficiently.”

“Taxpayers are becoming increasingly reluctant to discuss their tax affairs openly with accountants because of HMRC’s far-reaching powers to seize correspondence. This trend is now likely to continue, and may ironically lead to greater non-compliance,” Collins concludes.

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