Legal professional bodies including the City of London Law Society have criticised a HM Revenue and Customs (HMRC) consultation on addressing promoters of marketed tax avoidance schemes.

The consultation followed earlier government actions, announced in March, giving HMRC new powers to obtain information from tax advisers, targeting alleged non-compliance worth nearly £40bn according to the Treasury. 

In March HMRC consulted on proposals to target promoters of tax avoidance schemes. It focused on four areas, two of which are particularly relevant for lawyers as professional advisers, involving imposing new obligations and stronger information powers on those behind avoidance schemes and exploring measures to address legal professionals involved in promoting avoidance schemes. 

HMRC stated in March it would discuss with legal regulators how the SRA and BSB could “refine their codes of conduct and… take the most effective appropriate action against their members when they are breaching these rules.”

Among the issues on which HMRC has consulted is the assertion of legal professional privilege, which the tax authority said could be used to prevent it from obtaining relevant information about tax avoidance schemes. HMRC stated it would “challenge inappropriate claims of privilege before the tribunal”. 

The proposals received a robust response from the City of London Law Society, with the chair of the City’s well-regarded tax law committee, Philip Harle of Hogan Lovells, writing: “We agree with very little of what is proposed (other than that it is right to do something to tackle the promoters of mass-marketed avoidance schemes).”

Harle added: “We would like to clarify that we think HMRC and the Treasury need to go back to the drawing board with this set of proposals. We are not just talking about unnecessary costs, burdens and jeopardy for honest taxpayers resulting from the actions of a small number of bad actors. We are talking about proposals that breach established fundamental human rights, the rule of law and constitutional conventions.”

The president of the Law Society of England and Wales, Richard Atkinson, said the consultation included proposals to tackle tax avoidance schemes that were arguably disproportionate and potentially ineffective.

Atkinson added that the proposals could impact the broader tax advisory market, deterring legitimate advisers from advising and increasing compliance costs, thereby raising the cost of obtaining advice.

He said: “The watering down of the fundamental right clients have to legal professional privilege is a concern,” emphasising the society’s opposition to steps impeding the right to obtain confidential legal advice.

“The proposals also risk giving the executive unconstitutionally wide powers to declare certain arrangements or tax planning ‘off limits’ without primary legislation or court approval,” he added. 

The Revenue Bar Association and the Bar Council also submitted a joint response to the HMRC consultation. They noted that HMRC had not identified the behaviours they aimed to target “with sufficient precision” and that the consultation “did not differentiate between promoters of tax avoidance schemes who genuinely believe the schemes are effective and those who do not”.

They added that HMRC should target the behaviours more precisely before proposing regulatory changes and new criminal offences. They further mentioned that “there is currently no evidence suggesting that HMRC lacks the necessary powers” to address criminal behaviour and that “there was no need for some of the additional powers they seek”.

They argued that in cases where a scheme is promoted based on an honest belief in its effectiveness, “it may not be appropriate for HMRC or the CPS to pursue criminal charges”, suggesting HMRC could strengthen the existing civil penalty regime.