Legal professional privilege: how it relates to avoidance cases
Information with examples of legal professional privilege and how it relates to avoidance cases.
Legal professional privilege (LPP) is a common law principle. You cannot use an information notice to require a person to provide legally privileged information or to produce the legally privileged part of a document, and none of HMRC’s anti-avoidance legislation overrides this principle.
DOTAS refers to disclosure of tax avoidance schemes. POTAS refers to the promotors of tax avoidance schemes legislation.
Information on disclosure requirements for schemes promoted by lawyers can be found at section3 of the disclosure of tax avoidance schemes guidance.
A monitored promoter is a promoter to which a first tier tribunal has approved the issue of a monitoring notice under sections 242 to 244 of the finance act 2014. Information on promoters of tax avoidance schemes can be found at section3 of the disclosure of tax avoidance schemes guidance.
A monitored promoter cannot rely on legal advice as a reasonable excuse in connection with the charging of penalties in respect of failing to meet any of its duties under the DOTAS or POTAS rules where:
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the advice was not based on a full and accurate description of the facts
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the conclusions in the advice were unreasonable
Where a client of a non-resident monitored promoter fails to notify HMRC in accordance with s309 of the Finance Act 2004, any legal advice given or procured by the monitored promoter is to be ignored in determining whether the person has a reasonable excuse for that failure in connection with the charging of penalties in respect of that failure.
Similarly, where a person fails to provide information to HMRC in accordance with s310 of the Finance Act 2004, any legal advice given or procured by a monitored promoter is to be ignored in determining whether the person has a reasonable excuse for that failure in connection with the charging of penalties in respect of that failure.
These provisions do not require the production of privileged information or documents, but when considering whether or not the promoter has a reasonable excuse in any penalty proceedings the tribunal will need to consider if the legal advice is based on a realistic view of the facts and reaches a reasonable conclusion. Reliance on undisclosed legal advice cannot be used as a defence against relevant penalties.
Communications made by a lawyer may bring:
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the lawyer, where the lawyer is a sole practitioner
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their firm, in the case of a partnership or company within any of the definitions of a person who is an enabler (paragraphs 8 to 12 of schedule 16 Finance Act (No.2 2017)), and therefore within scope of a penalty under paragraph 1 of schedule 16 Finance Act (No.2) 2017
Such communications may demonstrate that the person is not within any of those definitions and therefore not within scope for a penalty.
If those communications are legally privileged, the person, whether an individual, partnership or company, suspected by HMRC of being an enabler, will not be able to provide those communications to HMRC, the Tribunal or the Court to demonstrate that they are not an enabler and therefore not liable to a penalty.
The declaration under paragraph 44 of schedule 16 Finance Act (No.2) 2017 is designed to deal with this situation in a way that does not breach privilege.
Paragraph 44(4) of schedule 16 Finance Act (No.2) 2017 provides that the Treasury may, by regulations, impose requirements as to the form and content of a declaration. These regulations are known as the Penalties for Enablers of Defeated Tax Avoidance (Legally Privileged Communications Declaration) Regulations 2017 and are in SI1245/2017.
Example
A client instructs a tax lawyer at a large law firm to advise on a proposed transaction.
The lawyer concludes that the proposed arrangements will not achieve the desired outcome but will do if certain changes are made.
However, the lawyer identifies that there’s then a material General Anti-Abuse Rule (GAAR) risk. The lawyer advises the client of this risk.
If the lawyer’s advice can reasonably be read as recommending against the transaction but the client nevertheless proceeds with the transaction, the lawyer will not be an enabler as they have not provided relevant advice.
However, the lawyer is a relevant lawyer and communications with the client are subject to LPP.
A declaration can be made in support of this conclusion by that lawyer or another lawyer at the firm after making due enquiry and if the lawyer is satisfied that the advice or action taken does not fall into any of the definitions of a person who is an enabler.
When a declaration can be made
The person that carries on the business in question must consider all information available to them and decide whether they’re an enabler or not in relation to the abusive tax arrangements.
The information that could demonstrate this might be a combination of legally privileged and other communications or information.
If there’s non-privileged information that would establish that the person is not an enabler, the person should rely on that information.
If non-privileged information exists and demonstrates that the person in question is an enabler, the relevant lawyer cannot make a declaration that the person is not an enabler by reference only to legally privileged communications, which, in isolation, could suggest that the person is not an enabler.
Ultimately it’s a question of fact whether a person is an enabler.
Example 1
A client instructs a tax lawyer at a large law firm to advise on a proposed transaction. The lawyer assesses the proposal and writes to the client explaining that the proposed arrangements will not achieve the desired outcome unless a number of further steps are taken, and on the basis of the factual assumptions he advises there’s no GAAR risk.
Before the transaction is implemented (with the assistance of another firm of lawyers), the lawyer learns that one of the factual assumptions is wrong, which does give rise to a GAAR risk, and he writes to the client to warn of the risk.
The transaction proceeds and is defeated. In the course of those proceedings, the client waives privilege in the first letter but not the second.
The combination of the 2 letters can reasonably be read as recommending against the transaction but the first letter alone cannot.
The lawyer is a relevant lawyer whose communications are subject to legal privilege. Just because the client has waived privilege in respect of the first letter does not mean privilege in both has been waived.
A declaration can be made by the lawyer or another lawyer at the firm after making due enquiry, even if that declaration needs to rely on a combination of the (no longer privileged) first letter and the second letter.
If the person considers they are not an enabler of the abusive tax arrangements and the only information that would demonstrate that is one or more legally privileged communications made by one or more relevant lawyers, then a relevant lawyer can make a declaration.
A relevant lawyer can make a declaration at any time, either before or after the tax arrangements in question are defeated.
However, a declaration is more likely to be made in response to HMRC informing a person that HMRC suspects them to be a person who enabled abusive tax arrangements that have been defeated.
It may be the case that different businesses are approached to provide advice in relation to particular arrangements, either jointly or separately.
Where advice that is legally privileged is provided by different businesses, each business that could be an enabler with respect to the advice it provided would need to make a declaration based on what it did.
A declaration cannot be made by one business on behalf of all the businesses that jointly or separately provided advice in relation to particular arrangements.
Example 2
A client of a law firm instructs the firm to advise on and assist with a transaction. The transaction is commercially driven but the firm are aware that tax structuring is part of the rationale for the transaction, and they’re told that tax advice is being provided by another adviser whom they believe to be reputable.
In order that they can advise on the corporate law aspects, and implementation, of the proposal the firm are provided with a copy of a steps paper produced by the third party tax adviser which sets out the steps and some tax commentary.
The firm are instructed by the client to comment on the corporate law aspects of the steps and to recommend any necessary changes so that they can be carried out in accordance with corporate law requirements.
The firm is not instructed to review the tax analysis of the steps, and it is not readily apparent to them, as non-tax specialists, that the arrangements were abusive.
The firm look at the proposal and advise that it cannot be completed as proposed owing to corporate law difficulties but suggest a modification to overcome these. The modification is accepted and the firm produce documents and assist with implementing the transaction.
It later transpires that the transaction is an abusive tax arrangement which is defeated. The lawyers at the firm are relevant lawyers and their communications with the client are subject to LPP.
If the facts show that the firm did not make suggestions with a view specifically to a tax advantage being derived (as opposed to with a view to facilitating the overall implementation of the transaction) and did not know that the arrangements were abusive arrangements, a declaration can be made by one of those lawyers or another lawyer at the firm after making due enquiry and if the lawyer is satisfied that the advice or action taken does not fall into any of the descriptions of a person who is an enabler.
A lawyer is likely to provide advice based on specific instructions from their client. If those instructions did not contain information that could have led the lawyer to have known, or reasonably be expected to have known, that the purpose of obtaining the advice was to participate in abusive tax arrangements the lawyer should take that into account when making a declaration.
The way in which the advice is structured and delivered must be viewed in context when considering whether the knowledge condition is, or is not, met.
Any person named in a declaration may have to pay financial penalties as set out in paragraphs 1 and 45 of schedule 16 Finance Act (No.2) 2017. The person who makes the incorrect declaration may also be liable to a penalty under paragraph 45 of schedule 16 Finance Act (No.2) 2017.
Any relevant lawyer named in it may face prosecution for providing false information should that declaration prove to be incorrect.
Effect of a declaration
HMRC, or a court or tribunal in any proceedings before the court or tribunal in connection with a penalty under the enablers legislation, must treat a declaration made by a relevant lawyer in relation to that penalty as conclusive evidence of the things stated in it.
This will not be the case if HMRC or a court or tribunal are satisfied that the declaration contains incorrect information, based, for example on evidence that may have come to light during the taxpayer enquiry.
Contents of a declaration
Paragraph 44(2) of Schedule 16 Finance Act (No.2) 2017 sets out what constitutes a declaration.
A declaration:
- is made by a relevant lawyer as defined in paragraph 44(6) of schedule 16 Finance Act (No.2) 2017
- relates to one or more communications made by the same or a different relevant lawyer that are legally privileged and for that reason cannot be relied on to demonstrate that a person mentioned in paragraph 1 of schedule 16 Finance Act (No.2) 2017 is not a person that enabled the abusive tax arrangements
- meets the requirements regarding the content set out in regulations
The declaration is structured to ensure that it does not require LPP to be breached. To be a valid declaration a relevant lawyer must provide information and confirmations to satisfy conditions A, B and C of the Regulations.
Condition A
Condition A requires that a declaration must identify all of the following:
- the person who would otherwise be liable to a penalty under the enablers legislation
- the relevant lawyer making the declaration
- the relevant lawyer or lawyers whose privileged communications would otherwise be relied upon
- the arrangements, or where appropriate the proposal implemented by the arrangements, to which the declaration relates
Condition B
Condition B requires that the relevant lawyer making the declaration must provide the confirmations described in regulations 6 to 10.
They do not need to be more specific than providing confirmation to ensure LPP is not breached by making the declaration.
Condition B confirms that at least one of the relevant sub-paragraphs in each of regulations 6 to 10 applies so that, when viewed as a whole, the person in relation to whom the declaration is made does not fall within any of the definitions of an enabler and is therefore not liable for a penalty under paragraph 1 of schedule 16 FA (No.2) 2017.
Condition C
Condition C requires the relevant lawyer making the declaration to certify that the information being provided is correct to the best of their knowledge and belief.
It also informs the relevant lawyer making the declaration that any of the persons named in condition A may have to pay a financial penalty and that any relevant lawyer named in the declaration may face prosecution for providing false information should the declaration prove to be incorrect.
The financial penalties are those mentioned in paragraphs 1 and 45 of schedule 16 Finance Act (No.2) 2017.
Where the same proposal for arrangements (a scheme) has been implemented more than once by arrangements that are substantially similar, a declaration may contain a statement that this is the case and that the involvement of the person in relation to whom it is made was such that all the things stated in the declaration are equally true in relation to those other arrangements.
This avoids the need for a person to make multiple, identical, declarations in such circumstances.
Example
In the ‘when advice is not relevant advice’ example, a barrister considers a request for advice about a client’s proposed tax arrangements.
In the barrister’s opinion, the proposed arrangements do not work but if various changes are made or additional steps inserted, the barrister can identify 2 alternatives that would deliver the client’s intended outcome.
Both alternatives would result in abusive tax arrangements and would almost certainly be counteracted under GAAR, or another tax provision.
The barrister’s advice sets out that although either alternative could deliver the client’s intended outcome, it’s likely that each would be successfully counteracted by HMRC under GAAR or using another tax provision. If the barrister’s advice can reasonably be read as recommending against taking either of the alternative suggestions forward, their advice will not be relevant advice.
If the client went against the barrister’s conclusions and used the advice to enable them to implement abusive tax arrangements without further input or advice from the barrister, then the knowledge condition would not be met.
The barrister is a relevant lawyer whose communications are subject to LPP. In the circumstances described above they could make a declaration that they do not come within the meaning of an enabler in any of paragraphs 8 to 12 of schedule 16 Finance Act (No.2) 2017.
The declaration can be made at any time, before or after a penalty is assessed and any appeal lodged. The outcome would be the same if, instead of a barrister, a lawyer in a large law firm provided the advice to the client.
The person potentially liable to a penalty under the enablers legislation would be the law firm and the declaration could be made by the lawyer whose advice is privileged, or by another relevant lawyer on behalf of the firm.
If the above proposal was implemented 10 times, the relevant lawyer making the declaration could include the statement mentioned under condition C.
Meaning of relevant lawyer
A relevant lawyer is a barrister, advocate, solicitor or other legal representative, with whom communications may be subject to a claim to LPP.
In Scotland, this will be communications protected from disclosure in legal proceedings on the grounds of confidentiality of communication.
Making an incorrect declaration
A relevant lawyer who carelessly or deliberately gives any incorrect information in a declaration is liable to a penalty of up to £5,000 (incorrect declaration penalty).
This includes the relevant lawyer making the declaration and any relevant lawyer mentioned in it. The person in relation to whom the declaration is made, such as a large law firm, will be liable for a penalty under paragraph 1 of schedule 16 Finance Act (No.2) 2017.
If the relevant lawyer who gave the incorrect information in a declaration has taken reasonable care, the incorrect information is not treated as given carelessly.
The consequences of making an incorrect declaration may include HMRC undertaking any or all of the following actions:
- considering charging a penalty under paragraph 45 of schedule 16 Finance Act (No.2) 2017, charging a penalty on a person now shown to have enabled the abusive tax arrangements under paragraph 1 of schedule 16 Finance Act (No.2) 2017
- considering informing the relevant regulatory body in accordance with the normal Commissioners for Revenue and Customs Act (CRCA) procedures, for them to consider appropriate sanctions
- considering criminal proceedings and prosecution in accordance with the HMRC Criminal Investigation policy
HMRC may consider criminal proceedings and prosecution is appropriate where:
- an individual holds a position of trust or responsibility
- materially false statements are made or materially false documents are provided in the course of a civil investigation
- pursuing an avoidance scheme, reliance is placed on a false or altered document or such reliance or material facts are misrepresented to enhance the credibility of a scheme
Before deciding how to proceed in relation to a declaration that is found to be incorrect, HMRC will engage with the person who made the incorrect declaration (or the person who provided misleading or false information resulting in the incorrect declaration if appropriate) to establish the facts and circumstances leading to the incorrect declaration being made.
To enable HMRC to assess a penalty for an incorrect declaration and to deal with any appeal against that penalty the relevant assessment, time limit and appeal procedural paragraphs are modified to refer to paragraph 45, rather than paragraph 1.
The time limits for assessing that enabler penalty are extended by virtue of paragraph 22(5) and (6) of schedule 16 Finance Act (No.2) 2017 by up to 12 months from the date the inaccuracy in the declaration was identified.
The following paragraphs of schedule 16 Finance Act (No.2) 2017 apply for the purposes of an incorrect declaration penalty as they do for a penalty under the enablers legislation:
- paragraph 19(1) — HMRC must assess the penalty and notify the person that the penalty has been assessed
- paragraph 20 — the penalty must be paid within 30 days from the day on which it was notified
- paragraph 22(1) is modified so that the penalty must be assessed within the relevant time, where the ‘relevant time’ cannot be earlier than the ‘end of 12 months beginning with the date on which the facts sufficient to indicate that the person is liable to the penalty came to the commissioners’ knowledge’
- paragraph 37 — a person can appeal against HMRC’s decision that a penalty is payable or the amount of the penalty that is payable
- Paragraph 38 — an appeal is treated in the same way as the assessment to the underlying tax to which the arrangements relate and the penalty is not payable until the penalty is determined, however sub-paragraph (3) is modified so that it has effect as if the reference to the ‘arrangements to which the penalty relates’ is to the ‘arrangements to which the declaration under paragraph 44 schedule 16 Finance Act (No.2) 2017 relates’
- paragraph 39(1) — the tribunal can affirm or cancel HMRC’s decision that a penalty is payable
- paragraph 39(2) — the tribunal can affirm HMRC’s decision on the amount of the penalty that is payable, or substitute for it another amount that HMRC had power to decide
- paragraph 39(5) tribunal means the first-tier tribunal or the upper tribunal
In addition, a declaration under paragraph 44 schedule 16 Finance Act (No.2) 2017 can be made for the purposes of demonstrating that an incorrect declaration penalty is not due under paragraph 45 schedule 16 Finance Act (No.2) 2017, in the same way it can be used for the purposes of a penalty under paragraph 1 schedule 16 Finance Act (No.2) 2017.
Under certain circumstances, HMRC may publish information about:
- any person who is or has been, or who an authorised officer suspects is or has been a promoter, a connected person or a person with any other role in relation to making a proposal or arrangements available for implementation under section 86 of Finance Act 2022
- any person who is or has been a promoter or supplier in relation to notifiable arrangements or proposed arrangements to which a scheme reference number has been allocated under section 311 Finance Act 2004 (Disclosure of Tax Avoidance Schemes) — publishing is done under section 316C of Finance Act 2004
- any person who is or has been a promoter or supplier in relation to arrangements or proposed arrangements to which a scheme reference number has been allocated under para 22 schedule 17 of Finance (No 2) Act 2017 (Disclosing VAT and other indirect tax avoidance Schemes) — publishing is under para 36 of schedule 17 of the Finance (No 2) Act 2017
Lawyer communications
Communications by a lawyer may bring:
- the lawyer, where the lawyer is a sole practitioner
- their firm in the case of a partnership or company
Within any of the definitions of a person about whom information may be published, and therefore within the scope of publishing.
Alternatively, such communications may demonstrate that the person is not within any of those definitions and therefore not within scope for publishing.
If those communications are legally privileged the person, whether an individual, partnership or company, will not be able to provide those communications to HMRC, the Tribunal or the Court to demonstrate that they are not a person that information may be published about.
Declaration about legally privileged communications
The declaration under section 209 of the Finance Act 2026 is designed to allow lawyers to make meaningful representations without breaching privilege.
Regulations made under section 209(8) of the Finance Act 2026 specify the form of a declaration, the information to be included in a declaration and when and how a declaration is to be provided. These regulations are known as The Publication of Information About Tax Avoidance Schemes (Legally Privileged Communications Declarations) Regulations 2026.
When a declaration can be made
Where HMRC has notified a lawyer that it intends to publish information identifying the lawyer under
- section 86 of Finance Act 2022
- section 316C of Finance Act 2004
- paragraph 36 of schedule 17 of the Finance (No 2) Act 2017
The lawyer will be able to make representations about whether or not the information should be published. These representations might include legally privileged information and other communications or information that are not privileged.
If there’s non-privileged information that would establish that information identifying the lawyer should not be published, the person should rely on that information.
Where the lawyer intends to make representations that information about them should not be published but cannot substantiate those representations without disclosing the content of privileged communications the lawyer may make a declaration.
A declaration should be provided alongside representations and made to the effect that the representations are true and the content of privileged communications would be sufficient (whether alone or with other information) to demonstrate this on the balance of probabilities.
Time limit
A declaration must be provided to HMRC no later than the representations to which it relates.
Example
A tax specialist lawyer at a law firm is instructed to advise on a proposal for tax arrangements.
The lawyer advises that the proposal would not achieve the desired outcome and that HMRC would be likely to challenge arrangements implementing it. The lawyer has no further involvement in relation to the proposal.
HMRC has suspicions about the lawyer’s role and notifies an intent to publish information about the lawyer under section 86 of Finance Act 2022. The lawyer has 30 days from notification to make representations about whether or not the information should be published.
The lawyer has not promoted the arrangements and does not fall within any of the other categories of person that information may be published about under section 86 of Finance Act 2022.
The lawyer wants to make representations that information about them should not be published but cannot substantiate their representations because their communications with the client are subject to LPP.
The tax lawyer, or another lawyer in their firm after making due enquiry, can make a declaration that the tax lawyer can provide in support of their representations. The lawyer must be satisfied that the advice or action taken does not mean the lawyer falls into any of the categories of person who information may be published about.
The declaration must be provided to HMRC alongside the representations to which it relates.
Effect of a declaration
HMRC, or a court or tribunal in any proceedings, must treat a declaration as conclusive evidence of the information included in it.
This rule will not apply where HMRC, a court or the tribunal, as applicable, is satisfied that the declaration includes incorrect information. This may be the case if, for example, evidence showing the lawyer is a promoter of the arrangements has come to light during customer enquiries.
Contents of a declaration
A declaration must contain the name, home address and practising address of:
- the lawyer who intends to make representations
- the lawyer making the declaration (if different)
- each lawyer whose privileged communications would otherwise be relied upon to establish that the representations to which the declaration relates are true
In relation to each lawyer named, the declaration must include:
- the name of each body that regulates the professional conduct of that lawyer
- where the body issues an identifying number to those it regulates, that number
A declaration must also identify:
- the arrangements to which the representations relate
- each fact stated in the representations to which the declaration relates
Finally, a declaration must confirm that the representations and contents of the declaration are true and be signed and dated by the lawyer making the declaration.
Penalties for making an incorrect declaration
A lawyer who carelessly or deliberately includes any incorrect information in a declaration is liable to a penalty of up to £10,000 (penalty for an incorrect declaration).
Incorrect information is included in a declaration carelessly if the person making the declaration has failed to take reasonable care to verify the information before including it.
Where a person provides a declaration made by another person and:
- the declaration includes incorrect information
- the person providing the declaration knew or could reasonably be expected to have known the information was incorrect
The person providing the declaration is liable to a penalty of up to £10,000.
Penalties
Penalties for an incorrect declaration fall to be determined and imposed by an authorised officer of HMRC.
Payment of a penalty is only required when the penalty becomes final.
A penalty becomes final when the period for any appeal, or further appeal against the penalty expires or, if later, when any appeal is finally determined.
Publication following an incorrect declaration
An authorised officer may publish information about a person where the person has incurred a penalty for making an incorrect declaration and that penalty has become final.
The information that can be published
Information that can be published is:
- the person’s name (including any trading name, previous name or pseudonym)
- any address used by that person
- any other information the authorised officer considers appropriate to identify the person or their business
- information about the arrangements to which the declaration relates including the person’s role in relation to those arrangements
- details of the penalty imposed on the person
Where the information will be published
The information may be published in any way that the authorised officer considers appropriate.
In general, the intention is to publish named tax avoidance schemes, promoters, enablers and suppliers on the GOV.UK website however, other channels are also likely to be used, for example publishing on social media.
HMRC would also normally expect to contact the appropriate regulatory authority.
Opportunity for representations
Where an authorised officer intends to publish information about a person who has incurred a penalty, the officer must notify the person involved and give the person 30 days from notification in which to make representations about whether the information should be published.
The authorised officer must have regard to any representations received and will carefully consider these before making a final decision.
Time limits for publication
Publishing that a person has incurred a penalty in relation to an incorrect declaration must take place within 12 months of the date on which the penalty became final.
Commencement
The amendments extending the circumstances in which HMRC can name lawyers under the relevant naming provisions have effect in relation to conduct occurring on or after 18 March 2026. The regulations at SI 2026/570 came into force on 23 June 2026.
Example
An authorised officer writes to a lawyer informing them that the officer intended to name them under section 316C of Finance Act 2004. The lawyer makes representations to the officer, stating that they should not be named. The lawyer makes a declaration under section 209 of Finance Act 2026 which is provided alongside representations. The declaration confirms that the representations are true and the content of privileged communications would be sufficient to demonstrate this.
In the course of a HMRC enquiry, a participant in the arrangements provides information which demonstrates that incorrect information was included in the declaration. The lawyer failed to take reasonable care to verify the information in the declaration before including it.
The lawyer is liable to a penalty up to £10,000. Assuming the penalty becomes final, an authorised officer may publish information about the lawyer. The lawyer will have 30 days to make representations about whether the information should be published.