New measures put forward by HM Revenue and Customs (HMRC) to deal with the problem of ‘tax agents who act dishonestly in tax matters’ include proposals that HMRC should ‘name and shame’ advisers who are found to have acted dishonestly and, more worryingly for most, should be allowed to have ‘a modernised framework allowing it both to penalise dishonest tax agents and to get access to their working papers to examine whether the dishonesty extends further through the client base’.
In other words, HMRC wish to have the right to carry out a tax compliance review on all the clients of a ‘dodgy’ tax agent.
According to HMRC, working papers are ‘all documents that relate to the work the agent has done in relation to the client’s tax affairs, including the preparation of accounts, returns and claims, and covering correspondence, analysis, calculations etc. Documents include electronic documents […] Working papers include tax advice and audit papers. They would not include material which is subject to legal privilege.’
Under the proposals, HMRC would have the right to examine documents going back 20 years (although there is not normally a requirement to retain accounting, etc. documents for that length of time).
The danger is that an innocent taxpayer who has used a tax adviser who has been found by HMRC to be dishonest faces the risk that their tax affairs will come under scrutiny. Even when there is no irregularity, dealing with tax enquiries by HMRC can be stressful and cause a considerable loss of time.
Communications between solicitors and their clients are normally privileged and thus would not be subject to the same degree of disclosure that would apply where the tax adviser is an accountant. The Supreme Court is shortly to hear an appeal by the Institute of Chartered Accountants in England and Wales over whether tax law advice given by its members should be treated as privileged.