UK clarifies legal privilege in tax-avoidance investigations

HMRC says none of its anti-avoidance legislation overrides legal professional privilege. An information notice cannot compel a taxpayer or adviser to produce privileged material, even if it would help establish the correct tax liability. HMRC must instead work from non-privileged documents, facts and third-party information unless privilege is waived or lost.^[1][2]

Corporate groups must identify the client carefully

The guidance distinguishes legal-advice privilege from litigation privilege. For a corporate entity, legal-advice privilege normally covers confidential communications between a lawyer and the limited group authorised to seek and receive legal advice; communications with other employees are not automatically covered. Copying a lawyer into an email is insufficient, and the dominant purpose of each communication must be obtaining or giving legal advice rather than commercial input.^[2]

A tax enquiry is not itself litigation

Litigation privilege can protect communications with employees, accountants and other third parties where adversarial proceedings are in progress or reasonably contemplated and the dominant purpose is conducting them. HMRC treats a tax enquiry as investigative rather than adversarial, although preparation to contest an expected assessment may qualify. Advice on how to implement a tax structure does not become litigation advice merely because a challenge is anticipated.^[2]

Disclosure and enabler rules retain specific safeguards

Under sections 309 and 310 of the Finance Act 2004, certain clients and persons must notify HMRC or provide information under the disclosure-of-tax-avoidance-schemes rules. The new guidance says a monitored promoter cannot use undisclosed legal advice as a reasonable-excuse defence where the statutory conditions apply. For enabler penalties under Schedule 16 to the Finance (No. 2) Act 2017, paragraph 44 instead permits a relevant lawyer to make a regulated declaration where privileged communications are needed to show that a person is not an enabler.^[3][4][5][6]

Document governance matters in cross-border groups

Multinational groups should define which individuals form the authorised client team, separate legal and commercial purposes, and control distribution of legal advice across entities and advisers. Privilege may be waived by disclosure or reliance on the substance of advice, while the crime-fraud or iniquity exception removes protection where documents were created in relation to sufficiently evidenced fraud or equivalent misconduct. HMRC says unresolved claims may be tested through a Schedule 36 information notice and the First-tier Tribunal procedure.^[2]