A last-minute amendment to the new regime on disclosing tax avoidance schemes has averted a showdown between the Law Society and Inland Revenue over the extent of legal professional privilege.

The Revenue last week announced that clients would be required to make a disclosure where the promoter of the scheme - including their legal adviser - believes the relevant information is covered by privilege. The client will also have the option of waiving privilege, allowing his adviser to make the disclosure on his behalf.



In guidance issued last month, the Society had advised that, in most cases, solicitors could rely on privilege and would not therefore be obliged to disclose prescribed information about a scheme (see [2004] Gazette, 23 September, 1).



It had warned that only test case litigation was likely to resolve the stand-off over the rules, which


were due to come into effect from 30 September.


Law Society President Edward Nally said: 'This amendment is acceptable as it protects this fundamental right [to legal professional privilege]. We agree that, in principle, putting the disclosure obligations on the client does not necessarily infringe privilege and that therefore the regulations would probably be workable on this basis.'


Accountancy bodies - which had reacted angrily to the Society's stance, claiming there would not be a 'level playing field' as a result - gave the amendments a cautious welcome, with the Institute of Chartered Accountants in England & Wales (ICAEW) calling it 'a step in the right direction'.


However, the ICAEW said it would look carefully at developments to ensure that all tax professionals are treated in the same way.


Frank Haskew, head of the ICAEW's tax faculty, said: 'The fact remains that the solution imposes different obligations on lawyers as compared to accountants.


'We remain concerned about the precise impact of legal professional privilege and whether lawyers will in practice enjoy a competitive advantage in the provision of tax advice. We do not think that such a situation would be in the public interest.'


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