The Law Society and the Inland Revenue are on a collision course over the extent of solicitors' disclosure obligations under the new tax avoidance disclosure regime - and the position may only be resolved through test case litigation, it has emerged.

The Revenue has told the Society that since the rules - introduced in the Finance Act 2004 and effective from


1 August - seek disclosure of the fact that a product or arrangement has been promoted rather than legal advice, they do not engage legal professional privilege.


But the Law Society says that by disclosing the prescribed information about a scheme, a solicitor is likely to be disclosing the substance of privileged communications.


Disclosures may have to be made from 30 September. The Society set out its position in guidance issued to the profession this week, calling on solicitors who experience problems with the Revenue to contact it.


Michael Hardwick, a Linklaters partner and chairman of the Society's tax law committee, said: 'We have tried to reach agreement with the Inland Revenue, but unfortunately it has not been possible.'


Law Society chief executive Janet Paraskeva said: 'Solicitors have a duty to keep their clients' affairs confidential. It must be absolutely clear when they should have to make a report under the rules.'


An Inland Revenue statement insisted that negotiations with the Society were ongoing. 'We are confident we can agree on a way forward which ensures the rules operate effectively as intended without requiring the disclosure of privileged information,' it said.


The guidance can be found at: www.lawsociety.org.uk.