The provision of tax advice by solicitors is widely recognised to be a potential minefield, as highlighted by the publication of a guidance note last month by the Law Society (“Guidance for Solicitors Advising on Tax” – 28th August 2020). This note forms part of a general drive to improve the quality of tax advice by the professions, as evidenced by the development of the PCRT standard (Professional Conduct in Relation to Taxation) involving the Chartered Institute of Taxation and the Society of Trust and Estate Practitioners amongst others. At this stage, at least, it has not been formally adopted by the Law Society as the obligations of solicitors are, in the Society’s view, already set out in law and the applicable regulatory requirements. Many will see the standard as representing best practice, nonetheless.
The guidance note recognises that relatively few firms offer specific stand-alone tax advice, and that for most firms it is more likely to form an ancillary element of other services. This in itself could add to a firms’ risk exposure as the issues that arise are likely to be outside of the adviser’s main specialisation. Potentially large sums of money might be involved which, at a time when the insurance market is hardening, could lead to many firms facing a steep rise in premiums. Thus the advice at the beginning of the guidance note is particularly pertinent, namely that “It is important that you and your client understand what is and is not within the scope of your advice. If you do not wish to advise generally on tax matters, you can agree a limited retainer, or agree to exclude tax matters from your advice”.
As to the standard of care that should be expected where tax issues arise, the note simply states that “where your retainer includes tax matters, you are under a duty to exercise reasonable care and skill in providing tax advice”. This should be read in conjunction with the provisions in the SRA Standards and Regulations which provide at paragraph 3.2 in the Code of Conduct for Solicitors, RELs and RFLs and paragraph 4.2 in the Code of Conduct for Firms that there is an obligation to provide a service which is “competent and delivered in a timely manner”.
Most firms recognise the risks of providing tax advice and it has therefore become almost standard practice to seek to exclude liability for it in the retainer. The validity of such terms might be brought into question, however, if the firm does then proceed to advise on the aspects of taxation in the services that it provides. It may be one thing to state that if a client needs tax advice they should seek to obtain it elsewhere, but if the firm does in fact provide it and it proves to be inaccurate then it may be much more difficult to rely on such a term. The Law Society note does consider the position here in some detail and concludes that where solicitors do provide tax advice they are under “legal duties to maintain standards”.
Although as yet uncertain it may well be the case, therefore, that solicitors are able to exclude possible liability for nonfeasance, and not advising on tax issues at all, but their ability to limit liability for misfeasance through the use of such a term when they do so may be more restricted. Looked at more simply, firms are unlikely to be able to have it both ways – exclude liability for “tax advice” in their standard engagement letter, but then still proceed to charge for the work involved in dealing with tax issues that arise in the retainer.
One area of particular and topical importance is that of the completion of SDLT returns within conveyancing transactions. It is important to see this for what it is, namely the provision of tax advice and not merely an administrative step in the conveyancing process. Unfortunately, SDLT calculations have become increasingly complex in recent years. Significant financial implications can now arise not simply from the value of the property being transferred but also from the circumstances surrounding the client’s proposed use of the property. The duty of reasonable care and skill referred to in the note will mean that where there are any available reliefs or exemptions, a solicitor will be expected to claim for them.
Against a worrying background of an increase in the number of claims being made against solicitors’ firms for inaccurate returns, either by way of overpayment or underpayment, we are delighted to be able to include a guest article (The Risks of Incorrect SDLT Returns) from Hannah Mackinlay – expert property lawyer and a trainer for many years on property law issues for both CLT and MBL. Recently she also became a director of SDLT Compass, an on-line SDLT assessment system for conveyancers. Hannah outlines the specific risks arising from SDLT returns in more detail here, and explains the benefits of using an expert system such as hers. Hannah can be contacted at firstname.lastname@example.org for more information or a demonstration of the system.