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Disclosure

The Revenue has issued changes to the disclosure rules set out in FA 2004, ss 306 to 319, which it claims put beyond doubt that all promoters, including the legal profession, are able to comply with their obligations without revealing privileged information.

The amended rules will require clients to make a disclosure in place of a promoter where the promoter believes the relevant information is covered by legal professional privilege. The client would make the disclosure within five days of the first transaction which forms part of the scheme. Clients finding themselves in this position will have to start making disclosures to the Revenue from 19 November 2004.

The client would also have the option of waiving privilege, thereby allowing the promoter to make a disclosure on their behalf.

The effect of these changes, the Revenue claims, is to ensure the rules operate as intended and apply fairly to everyone in the business of promoting or advising on tax avoidance schemes, including accountants, financial institutions and lawyers.

The Law Society recently published guidance to its members stating that lawyers will be unable to comply fully with their obligations since the information required by the disclosure rules is subject to legal professional privilege. Subsequently, the Revenue has been in discussion with representatives of the accountancy and legal professions to agree a way forward to ensure the rules work as intended without the need for advisers to divulge information they believe is protected by legal professional privilege.

The Tax Avoidance Schemes (Promoters and Prescribed Circumstances) Regulations 2004 set out the circumstances in which a person will not be treated as a promoter for the purposes of these rules. The Tax Avoidance Schemes (Information) Regulations 2004 prescribe both the information which is to be provided to the Inland Revenue and the timing by which that information should be given. The amendments affect both of these regulations by removing from the definition of a promoter everyone who cannot comply with the disclosure rules as a consequence of legal professional privilege; and moving the obligation to make a disclosure in such cases from the promoter to the client.

The Revenue will be issuing amended guidance shortly to reflect these changes.

However, Patrick Cannon, barrister, says that, apart from confirming that lawyers' tax advice will normally be exempt from disclosure, the amendments do not make any substantive changes. Legal professional privilege is 'still supreme'. The Treasury had promised the accountancy profession that it would be on an equal footing with the legal profession in respect of the disclosure regulations, and he believes that these amendments are effectively a 'face-saving measure' to divert attention from being able to keep that promise. He cited R (on the application of Morgan Grenfell & Co Ltd) v Special Commissioner of Income Tax [2002] STC 786 in which Lord Hoffmann held that 'legal professional privilege is a fundamental human right'. Mr Cannon said that the point about legal privilege is that it is the information that is privileged and not the person. Therefore merely shifting the disclosure obligation from the lawyer to the client does not change anything because the information was also privileged in the hands of the client. The likelihood is that if a client chooses not to disclose information on the ground that it is legally privileged and the Revenue subsequently imposes a penalty, the matter will end up before the Special Commissioners on appeal.

Agreeing that the change has not solved the problem, Francesca Lagerberg, national tax director at Smith & Williamson, believes that the Revenue 'is genuinely trying to deal with a difficult situation and create a level playing field for all tax advisers, be they accountants or lawyers'. However, she wondered if, given the substantial differences in opinion that exist, these changes will 'work as intended'. She added that the Tax Faculty is considering the matter in depth.

Negligible values

The Revenue has accepted the following securities as having negligible value for the purposes of a claim under TCGA 1992, s 24(2) during September 2004.

Company Security Effective Date

Cammell Laird Holdings Ords 5.4.02

Where the value of shares has become negligible, an allowable loss may be established by the owner claiming that they are treated as being sold and reacquired, either on the date of the claim or at a specified time within the two tax years prior to the year of claim.

The full list of negligible value securities is available at www.inlandrevenue.gov.uk/cgt/negligible_list.htm

Issue: 3979 / Categories: