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Still No Privilege For Accountants

Legal Advice Privilege, The Preserve Of Lawyers: Protecting Advice From Disclosure

Legal Advice Privilege

The recent judgment in R (on the application of Prudential Plc and another) v Special Commissioner of Income Tax (ref 1) has confirmed that legal advice privilege does not cover advice given by an accountant on tax law, even if the same advice given by a lawyer would be privileged. This is not a surprise but it is the first case specifically on the point and will undoubtedly have been disappointing for accountants. It is also a reminder that any advice from a non-lawyer, with the exceptions explained in this note, will not be protected by legal advice privilege.

The Background

The Revenue had served notices under sections 20 (1) and (3) of the Taxes Management Act 1970 (TMA) for delivery by the taxpayer of documents containing tax advice prepared by their accountants in relation to a commercially marketed tax avoidance scheme, which had been properly disclosed under the relevant provisions of the Finance Act 2004.

Such notices under the TMA required the taxpayer or third parties to deliver up documents which the Inspector reasonably believed were or might be relevant to the tax liability of the taxpayer. These provisions have been superseded by the revised information and inspection powers of H.M. Revenue and Customs in Schedule 36 of the Finance Act 2008. However, the Prudential case is still of particular interest in what it says about legal professional privilege (LPP).

Challenges To The Notices

Prudential challenged the notices by way of judicial review on two grounds;

  • That they sought material which was covered by LPP and
  • That they sought material which was not on any reasonable view relevant to any tax liability or to the amount of any such liability within the meaning of the relevant provisions of the TMA, but this aspect is outside the scope of this note

Legal Professional Privilege

There are two categories of legal professional privilege;

  • Legal advice privilege which covers confidential communications between lawyer and client prepared for the purpose of giving or receiving legal advice even though no litigation was at the time contemplated or in existence and
  • Litigation privilege which covers documents prepared for the dominant purpose of obtaining legal advice or to conduct or aid in the conduct of litigation which was at the time in existence or reasonably in prospect and which includes communications between the lawyer and/or the client and a third party

The Prudential case concerned legal advice privilege.

Legal Advice Privilege

It had been decided already by the House of Lords in R (Morgan Grenfell & Co Ltd) v Special Commissioners of Income Tax (ref 2) that these provisions of the TMA did not override the taxpayer’s right to claim LPP and to refuse to disclose material which was subject to LPP. As stated in that judgment;

'LPP is a fundamental human right long established in the common law. It is a necessary corollary of the right of any person to obtain skilled advice about the law. Such advice cannot be effectively obtained unless the client is able to put all the facts and matters before the adviser without fear that they may afterwards be disclosed and used to his prejudice.'

The question was whether for the advice to be covered by legal advice privilege the adviser had to be a lawyer or whether the adviser could be an accountant.

Although the judge accepted that advice on tax was advice on the law and that it is accountants who in the modern context tend to have the expertise to and do advise on tax law, he nonetheless found himself bound by existing authority (ref 3) to conclude that LPP applied only to legal advice given by a member of the legal profession. Clients of accountants and other professions (apart from lawyers), with very few restricted statutory exceptions (ref 4), or limited extensions when there is litigation or litigation is contemplated, have no right to claim LPP on the basis of legal advice privilege.

The court acknowledged the force in the argument that there should be a level playing field between the clients of different professionals who give legal advice but would have been more in favour of the removal of the right given to the clients of lawyers to refuse to disclose the legal advice they had been given, than to extend that right to the clients of other professionals, given the general desirability that all relevant material should be disclosed.

Litigation Privilege

LPP could apply to tax advice given by a non-lawyer in relation to current or contemplated litigation, depending on the context in which the advice was sought, as litigation privilege can extend to communications between the client or his lawyer and third parties. The particular circumstances would need careful consideration to ascertain that litigation was 'reasonably in prospect' (ref 5), and the dominant purpose for which the advice was prepared (ref 6).

But the extent of the privilege that could be claimed by the client of an accountant who acts for the client in the preparation and presentation of tax litigation generally (ref 7), with no lawyers involved, is not completely free from doubt (ref 8), although the judge in this case assumed 'for present purposes' that litigation privilege could be claimed, without qualifying this assumption in any way. However the Revenue had not argued the point and this was not part of the decision.

If the client obtains documents which are otherwise within litigation privilege with a view to submitting them to a lawyer, they may be protected even if they are never in fact submitted to a lawyer, but what if there was no intention ever to submit them to a lawyer? For litigation privilege to arise some authorities indicate that a connection with communications between client and legal adviser is required but others suggest that all that is required is that the document should have been prepared for use in the litigation;

'On the other hand it has been held that litigation privilege can extend to communications between a lawyer or the lawyer's client and a third party or to any document brought into existence for the dominant purpose of being used in litigation. The connection between legal advice sought or given and the affording of privilege to the communication has thereby been cut.' (ref 9)

There is also the so-called 'materials for brief/evidence' privilege affording protection for material produced for the preparation of the case, but again its extent is not completely clear.


Those seeking legal advice, as for example in relation to tax avoidance schemes, where the purpose of the transaction may be relevant to relief or exemption provisions, should be aware of the risk that this advice may have to be disclosed unless it is protected by LPP which, with very few restricted statutory exceptions, and limited extensions in relation to litigation, is only afforded to advice from lawyers and not other professionals, such as accountants.

For further information please email Nick Bates or Janice McMullen


  • (ref 1) - [2009] EWHC 2494 (Admin)
  • (ref 2) - [2003] 1 AC 563
  • (ref 3) - Wilden Pump Engineering Co v Fusfeld [1985] FSR 159 relating to advice by patent agents
  • (ref 4) - See for example the very limited protection previously afforded to tax advisers in section 20B(9) TMA applying only to section 20 notices, described in the Morgan Grenfell case as 'a curious provision designed to protect the proprietary interest of the tax accountant in his working papers.' and present provisions in paras 26-27 Schedule 36 Finance Act 2008 and in relation to notices to produce information relating to the conduct of a pending tax appeal in section 20B(2) and now para 19 Schedule 36; the very limited privilege reporting exemption for 'relevant professional advisers' under section 330(10) Proceeds of Crime Act 2002 which now includes accountants, auditors and tax advisers as defined; and the limited privilege afforded to patent agents and trade mark agents under the Copyright, Designs and Patents Act 1988
  • (ref 5) - USA v Philip Morris Inc [2004] 1 CLC 811 CA
  • (ref 6) - Waugh v British Railways Board [1980] AC 521
  • (ref 7) - For the limited protection in relation to Inland Revenue notices to produce information relating to the conduct of a pending tax appeal see 4 above
  • (ref 8) - In the employment context, in Grazebrook v Wallens [1973] IRLR 139, the National Industrial Relations Court held that privilege would extend to unqualified advisers, such as HR consultants, representing clients before industrial tribunals (now employment tribunals) ‘in relation to communications with an actual view to the litigation in hand and the mode of conduct of it’ but in New Victoria Hospital v Ryan [1993] IRLR 202 the Employment Appeal Tribunal stated that the privilege should be confined to qualified lawyers. In Howes v Hinckley & Bosworth Borough Council EAT 4.07.08, Elias J suggested that New Victoria Hospital wrongly treated Grazebrook as a case on legal advice privilege whereas it was about litigation privilege and could be followed in that context. This however was not part of the decision and is open to argument
  • (ref 9) - Three Rivers District Council v The Governors and Company of the Bank of England [2004] UKHL 48