HMRC Not Entitled to Order Disclosure of Privileged Documents
A taxpayer has won a key step in his dispute with HM Revenue & Customs on the basis of the principle of legal privilege. The decision reins in HMRC’s powers of investigation, which have been steadily increasing in recent times.
In the course of a dispute involving capital gains tax (CGT), Colin Wiseman was ordered by HMRC to disclose certain documents to enable HMRC to check his tax position for a specific year (2002/2003) pursuant to the Finance Act 2008. Wiseman resisted on the basis that eleven of the documents were legally privileged.
Regulations2 apply where a dispute arises between HMRC and someone who has received an information notice and privilege is in issue.
It was for the Tribunal to decide which of the disputed documents were subject to privilege; and then to give directions for the disclosure of any documents not privileged.
The documents in question
In their communications, Wiseman’s solicitors (Turcan Connell) made clear to HMRC that eleven documents, including seven letters, were considered to be privileged and were not disclosable. While HMRC accepted that Turcan Connell provided him with legal advice, it refused to accept that the documents related only to privileged communications.
Privilege
Communications between lawyers, acting in their professional capacity, and their clients are privileged. ‘Acting in their professional capacity’ means the provision of advice concerning rights and liabilities under private or public law and ‘what should prudently and sensibly be done in the relevant legal context’.
However, there was disagreement as to whether it was necessary to consider the dominant purpose of the communication in order to determine whether a document attracted legal advice privilege.
The Tribunal provides an important overview of privilege, stating that “the dominant purpose is ordinarily to be viewed from the perspective of the author of the document or the person under whose direction the document was created”.
In relation to each document, if there may be more than one purpose for the communication it was necessary to consider whether the dominant purpose was the seeking or giving of legal advice. If the dominant purpose was to seek or give legal advice, the document containing or evidencing that communication will be privileged. But if the dominant purpose was non-legal, then the document was not privileged.
All seven letters were privileged as they recorded communications from Turcan Connell for the purpose of providing Wiseman with legal advice or keeping each other informed so that advice may be sought and provided. Similarly, records of telephone conversations were privileged from disclosure.
Finally, there were documents prepared by Turcan Connell relating to two meetings. From Turcan Connell’s ‘perspective’, the dominant purpose of discussions in one of those meetings was for the seeking and provision of legal advice, and the documents were thus privileged and protected from disclosure.
As for the second meeting, the dominant purpose was not for the provision of legal advice and so the documents were not privileged. They were to be disclosed.
What does this mean?
This is an important ruling for tax payers and their advisers, providing reassurance that HMRC cannot order disclosure of privileged communications between those it is in dispute with and their legal advisers.
HMRC is known for its wide-ranging powers for information gathering – which have been enhanced in recent years. This decision is an important check on those powers.
1Colin Wiseman v HMRC [2022] UKFTT 00075 (TC)
2 Information Notice: Resolution of Disputes as to Privileged Communications Regulations 2009 (SI 2009/1916)
If you would like us to cover an issue in the next NGM Tax Law Newsletter, we would be pleased to hear from you