Where privilege is most at risk in tax disputes

In tax matters, privilege can be waived deliberately as part of a strategy. More often, however, it is lost unintentionally, depending on how advice is taken, recorded and shared over time. Once lost, privilege cannot be recovered.

It is therefore important to manage privilege from the outset of a matter and throughout its life, whether or not a dispute is in prospect.

Legal privilege in tax disputes: a brief recap

In our previous article on privilege, we outlined the core principles of legal privilege and how they apply in tax enquiries and disputes. By way of brief recap:

• legal advice privilege protects confidential communications between a client and a lawyer for the purpose of giving or receiving legal advice; and
• litigation privilege protects certain communications (including with third parties) where litigation is in progress or reasonably in contemplation and the dominant purpose test is met.

Both are narrower than many assume, and it is in that gap that risk most often arises.

The limits of legal advice privilege

Legal advice privilege is often assumed to provide broad protection, but in practice its scope is narrower and more technical. The following limits are particularly relevant in tax matters.

It applies only to confidential communications between a client and a qualified lawyer for the purpose of giving or receiving legal advice.

This gives rise to three key constraints:

• the protection is limited to lawyers. Advice from other professional advisers does not attract legal advice privilege, even where it addresses legal or tax issues.
• the communication must be for the purpose of legal advice. Commercial, strategic or administrative documents may not be privileged, even if lawyers are copied into them.
• the communication must remain confidential. Circulating advice beyond those who need to know, or using it in a wider context, can undermine privilege.

In a tax enquiry, these limits can have significant consequences. Issues are often analysed over a long period and across different teams, and documents created early may later be scrutinised by HMRC. Whether those documents are privileged will depend on how they were created and used at the time.

The limits of litigation privilege

Litigation privilege can offer broader protection, particularly as it can extend to communications with third parties. However, it is often harder to establish in practice.

Litigation must be in progress or reasonably in contemplation, and the dominant purpose of the communication must be the conduct of that litigation.

In tax matters, litigation privilege will often arise later than clients expect. An HMRC enquiry, even where points are disputed, does not in itself mean that litigation is in contemplation. In many cases, litigation is only realistically in prospect once HMRC has reached a concluded view (for example, by issuing a closure notice or assessment) and the taxpayer has taken steps to challenge it, such as by appealing.

Before that stage, HMRC may still be gathering information or testing positions, and there may be no clear indication that a dispute will proceed to litigation.

As a result, there is often a prolonged period during which litigation privilege does not apply. Documents created in that period can present particular risk, as their status may later be challenged by HMRC.

Non-lawyer advice

Accountants and tax advisers

Accountants and other tax specialists play a central role in most tax matters. As a matter of English law, their advice is not protected by legal advice privilege.

Written advice from accountants, internal tax teams and external consultants may therefore be disclosable in a dispute, including communications which:

• assess the strength of a tax position;
• identify risks or areas of vulnerability; or
• explain the rationale for an approach taken.

These are often the documents most closely scrutinised by HMRC, and may become key evidence in a dispute.

Other non-lawyer advisers

The same principles apply to other non-lawyer contributors, such as consultants, valuation experts and internal specialists.

Even where these individuals are central to the analysis, their communications are not privileged simply because they form part of a wider advisory process. Routing communications through lawyers does not change their status if the dominant purpose is not legal advice.

This creates risk where analysis develops through working papers, emails or presentations, which may later be relied on as evidence of how a decision was reached.

Mixed advice and blended teams

Tax advice is rarely delivered in isolation. Lawyers, accountants and other advisers often work together, sometimes on the same communications.

Where advice is mixed, privilege will only apply if the dominant purpose is the giving of legal advice.

A single communication may include:

• legal advice on how to respond to HMRC;
• accounting analysis of the figures; and
• commercial discussion of next steps.

If these elements are not clearly separated, there is a real risk that the communication will not be treated as privileged. Copying lawyers into a chain does not resolve the issue, nor does embedding legal comments within a wider discussion.

This risk is often increased where communications are shared across large groups or combined into composite documents, making it harder to identify what is said by whom and for what purpose.

In practice, these structural limits are only part of the issue. Privilege is more often lost through how documents are created and used.

About this series

This briefing forms part of a series on UK tax disputes, drawing on our experience advising individuals, trustees and family offices on HMRC enquiries, investigations and related litigation. The series explores how HMRC’s approach is evolving, where the key risks now lie, and the practical steps that can be taken to manage exposure and protect reputation.

The series includes:

• UK tax disputes: managing tax risk – examining the drivers behind increased HMRC scrutiny and common triggers for enquiries.
• Tax and reputation management: why sound tax affairs are a strategic imperative – considering the growing intersection between tax compliance and reputational risk.
• Trustees and UK tax disputes: navigating increased HMRC scrutiny – focusing on the particular challenges facing trustees and offshore structures.
• Legal privilege in UK tax disputes: why it matters – outlining the core principles of legal privilege and how they apply in HMRC enquiries and disputes.
• Artificial intelligence and tax disputes: top five risks for trustees using AI – exploring the growing use of artificial intelligence in tax matters and the key risks this creates for trustees.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, June 2026