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The Law Society issued guidance advising that a solicitor who disclosed information about tax avoidance schemes under the new Inland Revenue regime was "likely to be disclosing the substance of privileged communications passing between him and his client for the purpose of obtaining legal advice".
The legal profession is claiming legal professional privilege and as a result, believe they will not be covered by the new disclosure rules in many cases and would not, therefore, have to inform the Revenue about their clients' tax arrangements.
It is reported that the government did not intend for lawyers to enjoy a special position and is now considering amending the legislation to override the Law Society guidance. Meanwhile, the Law Society and the Inland Revenue have failed to reach agreement on this point.
Coach and horses
Not surprisingly, this has infuriated accountants and advisers who cannot claim the same privilege and have already been highly critical of the rules which force them to disclose information about the arrangements they make with their clients.
Aidan O'Carroll, Head of Tax at Ernst & Young said: "The new regime calling for early disclosure of tax schemes is now set to fail. "The Law Society's advice that complying with tax shelter disclosure rules breaches legal professional privilege runs a coach and horses through the tax avoidance disclosure regime.
"The entire tax avoidance industry will simply move to the lawyers and the policy objectives of this new early disclosure regime will be defeated unless the Government takes decisive action quickly.
"It is completely unacceptable that the application of the regime depends upon whether tax advisers are practising as part of a law firm or as part of an accounting or other firm. This is both irrational and anti-competitive. The start of the regime should be deferred until there is a level playing field".
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Susie Hughes © Shout99.com 2004
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