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Lawyers and accountants may speak different languages, but when it comes to tax disputes they need to collaborate to get the best result for clients.
In the Budget, the Chancellor announced the government’s latest step towards what it calls its intention to raise ‘standards in the tax advice market’. The consultation which is currently open considers a number of possibilities, one of which is regulation by a separate statutory government body.
Regardless of the final conclusion or recommendation, it is now more important than ever for accountants and lawyers to treat each other as collaborators, and not just competitors, especially when it comes to complicated tax matters.
Against this backdrop, we explore the relationship between lawyers and accountants, (particularly in the context of tax matters that might end up being contentious), and consider the top five reasons why effective collaboration is best for both professions and clients.
1. Different skill sets and experience
Whilst as lawyers, we are comfortable with complex drafting and interpretation of legal documentation, lawyers are not as familiar as our accountant colleagues are with for example, the interplay between pure tax matters and accounting principles; which can be key consideration for a client (during a dispute or otherwise).
Litigation cases, and in particular tax litigation cases, rarely ever start life as a dispute. Often accountants and advisers are assisting their clients on the everyday administration and running of their business and may have been involved in the matter long before it became contentious. Therefore, lawyers are very rarely able to be as familiar with the daily issues and concerns that the client may have.
Even matters which have reached the highest courts in the UK (or referred to Europe) may have started off as a seemingly simple enquiry. Understanding the background to why decisions were taken and having more of a proper appreciation of the client’s business is something that the accountant is often better placed to provide.
2. Privilege
Legal professional privilege (LPP) protects certain confidential communications from disclosure without a client’s consent, even from the Court or Tribunal. There are two types of legal professional privilege: legal advice privilege and litigation privilege.
Legal advice privilege protects communications, including emails, letters and telephone calls, between a lawyer and their client that are made for the sole, or dominant, purpose of giving or receiving legal advice. Litigation privilege extends to documents and correspondence prepared for the sole or dominant purpose of litigation.
In R (Prudential plc and another) v Special Commissioner of Income Tax and another (a case in which one of the authors acted), the Supreme Court refused to extend the scope of legal advice privilege to tax law advice given by accountants. This was reiterated in the more recent decision in The Financial Reporting Council Ltd v Frasers Group plc which reinforced the principle that, even in circumstances where litigation is reasonably within contemplation, correspondence or documents will only be protected by litigation privilege where they have been prepared for the sole or dominant purpose of litigation.
This could be challenging for advisors in matters where a dispute with HMRC is not ‘reasonably within contemplation’ and advice is given to the taxpayer by a non-lawyer. Adverse parties, including HMRC, may be able to access documents that may not be in the client’s best interest to share.
Many clients will not have as good an understanding of the nuances of the rules in this area. The potential fallout from not having communications covered by privilege should be explained to the client at a very early stage so that a pragmatic approach can be taken in order to provide sufficient protection.
3. Alternative dispute resolution
We are seeing a real rise in the use of alternative dispute resolution (ADR) in tax matters. Not least because there are at least 50,000 cases causing a backlog in the First-tier Tribunal alone. Mediation in particular, is a helpful tool to unlock the disputes which may have entered into a death spiral of correspondence.
The Litigation and Settlement Strategy (LSS) published by HMRC, sets out that where HMRC considers that it is likely to succeed in litigation and where litigation would be both effective and efficient, it cannot settle for less than 100% of the tax, interest and penalties (where appropriate) at stake.
Whilst the mediation process is not perfect, an estimated 90% of cases settle either at mediation or shortly after with the parties working collaboratively to focus on the sticking points, and for the taxpayer to clarify any misunderstandings in the facts.
A key benefit of mediation is that the parties are able to explore solutions to the dispute under consideration without being concerned that something would be an admission if the mediation falls through. This, of course, does not apply to ‘tax facts’ (ie, legal and technical implications to a taxpayer’s liability).
The most successful mediations (as with litigation) are ones where the taxpayer has a joined-up approach between its relevant advisers. In something as expansive as tax, both professions need to appreciate the boundaries of their skills and experience and in turn, acknowledge the value-add that another professional can provide.
4. Quantifying the tax
Accountants are, of course, best placed to quantify the tax due, which is often one of clients’ biggest concerns.
Accountants have the software and knowhow to be able to do a detailed review and analysis of the substantive tax issue in hand. Whilst tax lawyers are able to conduct high- level checks of HMRC’s tax calculations, in the absence of the accountant’s expertise and input, the client would be almost entirely reliant on HMRC’s view of the tax at stake, which does not always reflect the best outcome for the client.
Given this naturally impacts the amount of interest and penalties that might also be due, this cannot be an area for any lawyer to consider to be a small point.
5. Client service
The complicated nature of advice required for clients in the modern world is only likely to increase. It is rarely (if ever) the case that a client can get all that it needs from a single professional adviser (regardless of the size).
More and more, clients are looking towards lawyers and accountants to take the role of ‘trusted advisers’ and part of that trust is placed upon them knowing when they should be including other people; not just those in the same firm or indeed those in the same profession.
In summary, by treating the relationship between lawyers and accountants as a collaboration rather than a competition, both can achieve the best outcomes for clients together. Lawyers and accountants speak different languages but by understanding the other’s skill set, the diversity of thought each bring to a matter can only be for the better.
First published in Accountancy Daily on 25th March 2024.
further information
If you have any questions or concerns about the topics raised in this blog, please contact Waqar Shah or Krishna Mahajan.
about the authors
Waqar Shah is a Partner in the Dispute Resolution department, focusing on the resolution of complex tax matters. He acts for high net worth individuals and corporate clients across all sectors in respect of HMRC disputes and investigations across the full range of taxes.
Krishna Mahajan is an Associate in the Dispute Resolution Team, who specialises in litigation and resolution of complex tax matters.
We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.
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