The confusion caused by the one-off tax hit on professional firms and disenchantment with the revenue is just part of specialist tax lawyers’ everyday life, Grania Langdon-Down discovers

Most lawyers may prefer not to think about tax unless they have to. But news this month that a significant number of law firms will miss out on promised relief on the one-off tax hit caused by new accounting rules – because they heeded advice to adopt the rules early – has pushed the subject to the forefront of many solicitors’ minds.


That sense of injustice – which the Law Society and accounting bodies have taken up with Revenue & Customs, (see [2006] Gazette, 12 January, 5) – reflects the disenchantment felt in the business community towards an increasingly confrontational tax regime, according to leading tax lawyers.

Heather Gething, head of tax at City firm Herbert Smith, puts it plainly: ‘The Revenue is obsessed that anything that isn’t covered by legislation is “avoidance” and should be stamped out, and people named and shamed. The decline in the intellectual thinking there is lamentable.


‘We now have 38,000 pages of legislation and statements of practice, most introduced under this Labour government. No individual who hasn’t studied law, who hasn’t been immersed in it, would be capable of understanding it all. The quality of the legislation has definitely gone downhill. The endless rewrites haven’t made things simpler. All they have done is make the professional’s life hell.’


The House of Lords’ unanimous decision in Barclays Mercantile Business Finance Limited v Mawson [2004] UKHL 51 said that tax legislation has to be construed purposefully. ‘This should be enough for the Revenue to get where they need to be by simply drafting good commercial legislation aimed at commercial profit,’ she says. ‘But they are obsessed with detail, and the more detailed the legislation is, the more people will play with it. And frankly, with the tax burden as it is, people will play with it.’


Another result of the Revenue’s attitude, she says, is that the possibility of relocating to a less hostile tax regime will be ‘more and more on the agenda’. Mike Hardwick, chairman of the Law Society’s tax law committee and partner in Linklaters’ 13-partner corporate tax department, agrees: ‘I am certainly aware of a couple of companies which are thinking about moving overseas.’


James Carter, head of corporate tax at City firm Speechly Bircham, says clients in the hedge fund and investment management industry are feeling ‘very picked on’. He adds: ‘They are very portable industries and could be run just as easily from somewhere like Dubai, which has set up a financial services zone, as London.’


For Charles Suchett-Kaye, head of tax at City firm Reynolds Porter Chamberlain, relocation is not a top priority for clients yet, ‘but companies are starting to look at it. There is a threat from the new EU members, such as Latvia and Poland, where they are introducing flat-rate taxes and no tax reliefs, which cuts down all the administrative hassle you have here.


‘The Revenue sees itself as a tax-gathering department in a slightly medieval sense. The bottom line is that government is short of money, and it believes that if it doesn’t adopt this rather adversarial approach, people will try to avoid paying, which is usually a sign that you are trying to extract too much.’


One of the big issues for clients, he says, is the tax avoidance reporting requirements, which have been extended to in-house schemes. The disclosure requirements are also high on the tax law committee’s agenda. Mr Hardwick says: ‘The aim is to try to ensure the new rules draw a fair line between disclosing tax avoidance schemes and not having to disclose routine tax planning. It is in no one’s interests to cast the rules too widely, because if everything has to be disclosed, the Revenue will just get buried.’


When it comes to the division of work, Mr Suchett-Kaye says that at least 75% of corporate tax work goes to accountants rather than lawyers, because they are more involved with their clients on a day-to-day basis. ‘We tend to get involved when there is a particular transaction. It’s a pity, and different from America, where lawyers have a much bigger share.’



Mr Carter highlights another difference: ‘You can run a very reasonable tax practice with four corporate tax lawyers, as we do. Even the big law firms with a corporate tax practice of 30 lawyers have a fraction of the resources and weight the big accountancy firms can throw at it. But the converse is, you don’t have to score very many victories to be very busy.’


Herbert Smith’s tax department deals with business tax, both contentious and non-contentious work, and includes seven partners and about 17 associates. Ms Gething says: ‘There is obviously some competition with accountants over the advisory market. But there is no overlap over documentation of advice and disputes, which they can’t do.’


On the personal tax front, Ron Downhill, consultant partner at City firm Berwin Leighton Paisner, says: ‘Some of my best introducers are accountants. We are not fighting over the same scrap of food, albeit we tend to work with the medium-sized accountancy firms which don’t have the internal support that the big four would have. We don’t represent a threat to their client relationship, because we just do the work and go away. It is very fruitful for both professions.’


He says one of the big issues for his clients is inheritance tax. ‘People feel it has become a very onerous and unfair tax for the middle classes. Capital gains tax has also become an issue in divorces if a couple separates before the beginning of the year any transfers are made, which the Law Society is taking up with the Revenue.’


Lisa Parisi is a personal tax partner with Pinsent Masons in Birmingham. The firm has about 40 tax lawyers split between three teams – personal, corporate and share schemes. Most of the work she does relates to large, private company shareholders and their personal affairs.


‘Fewer personal tax clients have the appetite now for doing something quite aggressive in terms of tax planning. The best example is inheritance tax. The Revenue introduced a new tax which affected schemes already in place, which a lot of clients felt was playing dirty.’


The anti-money laundering regulations have also proved a bonanza for the Revenue, lawyers claim. Stephen Goldstraw is a corporate tax partner with City firm Manches and the firm’s compliance officer. He says that at least 95% of the references they make to the National Criminal Intelligence Service (NCIS) are tax-based. ‘I have made maybe one reference where I thought it might have had something to do with money laundering as you understand the term.’


Manches has a well-known family law team, and the problems tend to be uncovered by matrimonial lawyers in disputes about assets and income. ‘Nobody would ever tell a tax lawyer that they have untaxed money,’ Mr Goldstraw says dryly, adding: ‘The Revenue was getting to know about loads of misdemeanours they would never have discovered otherwise’.


However, he says that since last year’s groundbreaking case of Bowman v Fels [2005] EWCA Civ 226, matrimonial lawyers do not, in general, have an obligation to report that sort of thing to NCIS because privilege now applies where there is actual or contemplated litigation. ‘Before that decision, we were making a reference a week to NCIS, then suddenly [we] never get one.’


So, what does it take to be a good tax lawyer? The sharpest mind and the greatest determination, says Ms Gething, ‘because, unless you have the determination to read to the end of the chapter, you won’t be able to advise without being negligent. You are permanently kept on your toes. But this means you can have a lifetime in tax and never get bored and, because it is such a varied discipline, you can change your emphasis as you go along’.


Mr Suchett-Kaye agrees that – contrary to what other solicitors may assume – life as a tax lawyer is ‘never dull’. He adds: ‘You often find in commercial deals that, while the commercial lawyers are arguing with each other, the tax side is normally settled in a very amicable way. We don’t as a rule shout at each other and we respect each other’s knowledge.’


It helps that there is usually a ‘right answer’, says Mr Carter, ‘and having a third party – the Revenue – hanging over everything, brings you together’.


Mr Downhill highlights a difference between corporate and personal tax lawyers. ‘On the personal side, the relationship with the client is very important, so it needs somebody who is more of a mixer than a boffin. The depth of technical expertise required is generally less than on the corporate side. I have done both, and I find it more interesting working with our clients – the entrepreneurs, actors, businessmen. You can be a bit of a voyeur into their lives and become friends with them.’


Ms Parisi stresses the need to be proactive and to have ‘good commercial nous, because you can’t look at a person’s personal tax in isolation from his business interests’. She adds: ‘You are also dealing with very bright clients in an area which is a complete minefield, so it is essential not to be scared to make a recommendation. Nobody expects you to say it is guaranteed.


‘But, nowadays, some firms – dare I say it, more in the accountancy field – are so scared of litigation they just say the law is this, what do you want to do, which is utterly inappropriate. The client has paid you a lot of money to find out what you think they should do.’


Grania Langdon-Down is a freelance journalist