R (Prudential plc & another) -v- Special Commissioner of Income Tax: Supreme Court judgment on legal advice privilege

It has not been the best of months for the tax advisory arm of the accountancy profession. Having been questioned by the Public Accounts Committee as part of its wider ranging review of tax avoidance in the UK, it has also failed to persuade the Supreme Court (in the Prudential case) that legal advice privilege should be extended to advice on tax law given by the accountancy profession. The case was, in effect, fairly simple. Prudential had made use of a scheme devised by PricewaterhouseCoopers (PwC) and had received legal advice in connection with the scheme from PwC. When HMRC asked for copies of this advice, Prudential argued that it was covered by legal advice privilege (LAP), a subhead of the more general concept of legal professional privilege (LPP) which also includes correspondence entered into in the course of litigation.

By a majority of five to two, the Supreme Court held that it was not open to the courts to extend LAP further than its accepted ambit. Lord Neuberger, delivering the leading judgment, held that, although it would "accord with its underlying logic" to extend LAP to legal advice given by members of other professions, there were three overriding reasons why it would be unwise to do so. First, an extension of LAP to legal advice given by a member of a profession which "ordinarily includes the giving of legal advice" would lead to uncertainty, both as to whether the requisite occupation constituted a "profession" (would it, for example, include town planners, architects or pensions advisers?) and as to whether legal advice was "ordinarily" provided by such advisers - for example, a town planner instructed to try to obtain planning permission.

Secondly, he considered that this was an important policy issue best left to Parliament rather than the courts, and thirdly that Parliament had declined to extend LAP in the way argued for by Prudential when it had extended the principle to cover advice given by, for example, legal executives and foreign lawyers.

While as a practical matter there was much sympathy for extending LAP to tax law advice given by accountants (and indeed the two dissenting judgments alluded both to this and the fact that the preponderance of tax advice is given by accountants), the judgment itself was not surprising given the historical basis of LAP.

It appears that the accountancy profession will now have to resort to political lobbying to effect a change in law. In the current climate, that will be a hard sell to Parliament.

Please click on the links below for the other articles in the February 2013 tax newsletter.

• HMRC publishes settlement opportunity
• Secret Hotels2 Ltd -v- HMRC: Court of Appeal
• HMRC -v- Charlton: FTT case on discovery assessments and possible defences
• Taylor Clark Leisure plc: VAT groups and repayment claims
• HMRC -v- Anson: Court of Appeal rules on the tax transparency of Delaware LLCs
• VAT on acquisition costs following the Court of Appeal decision in BAA -v- HMRC
• UK FATCA regulations
• Proposed financial transaction tax