At Karen Eckstein Ltd, our aim is to help practitioners avoid problems with their clients. Claims and complaints can be hugely costly, and detrimental to the business in terms of reputational harm, wasted time and damage to client relationships. In this short series of articles, we look at common areas in practice where there are traps for the unwary, and give tips on how to manage those risks.

The first trap relates to requests for information from HMRC. An adviser will feel under pressure to respond to an informal request, such as a letter requesting information about a client or former client, because they consider that they are under a duty to do so, or because they don’t want to be seen to be uncooperative – damaging their client’s position or their own relationship with HMRC. 

Very rarely, in our experience (although we accept that we may only see the cases where problems arise) do practitioners consider whether or not there is a duty to respond to the request, whether it is in the client’s best interests to do so, and whether there is an obligation not to do so without client consent. Of course, that consent must only be obtained on an informed (advised) basis.

So what does that mean? Well, HMRC can ask for information, but it does not mean that it is necessarily entitled to it by virtue of a mere request. 

You may wish to consider the following points (see also flowchart 1):

• Is HMRC entitled to the information, or does it need to make a formal request (a formal Sch 36, Finance Act 2008 (FA 2008) notice for example)?
• Is it in the client’s best interests to provide the information even if HMRC is not entitled to it? If so, be able to explain to the client why. For example, providing information might justify action taken and dispel any concerns HMRC has.
• If there are no good reasons for providing the information, then doing so might cause costs to be incurred unnecessarily.
• If it is not clear whether the information should be provided voluntarily, take specialist advice from an expert in tax investigations or specialist counsel before advising the client on the risks and advantages of doing so. The client can then give informed instructions on whether to provide the information without a formal notice.

All too often we see advisers missing out the steps above, providing the information, and allowing an investigation to be unduly continued, with all the costs and inconvenience incurred. And client confidentiality has been breached because, even though the adviser may be engaged by the client to deal with HMRC enquiries, it will be open to the client to argue (with some merit) that that engagement did not extend to supplying HMRC with information that was confidential to the client, and that HMRC was not entitled to it. Such a challenge by the client could lead to claims, complaints or both.

So, is the solution to request a formal statutory notice, eg, a Sch 36, FA 2008 notice? Well, it isn’t as simple as that. The adviser then must consider if the notice is valid, eg, is it in time, is it procedurally valid, is it valid in its extent, is what is being requested under the notice correct? 

Again, it might be in the client’s best interests to provide the information being sought under the notice, but the client must give informed consent. 

Points to consider include the following (see also flowchart 2, above):

• Is the notice valid in all respects? (If unsure, take advice.)
• If not, is it in the client’s best interests to provide any or all of the information requested in any event and if so, why?
• If not, and there are no good reasons for providing the information, then doing so might cause costs to be incurred unnecessarily.
• If it is not clear whether any of the information should be provided voluntarily, take specialist advice from an expert in tax investigations or specialist counsel before advising the client on the risks and advantages of doing so and of challenging the notice. The client can then give informed instructions on whether to provide any of the information that it considers HMRC is not entitled to and on whether to challenge the validity of the notice.

Failing to take these steps can result in claims, complaints and significant cost for the adviser and client. 

Karen Eckstein, solicitor, Cert Institute of Risk Management, a CTA with 30 years’ experience of defending professional negligence claims (karen@kareneckstein.co.uk)

• Future articles in the series will include responding to a professional clearance request and a request from a third party.