Accountants and reserved legal activities – a taxing problem
Posted by Iain Miller, partner at Legal Futures Associate Bevan Brittan
Miller: accountants targeting insolvency work
The Institute of Chartered Accountants of England and Wales (ICAEW) has published its plans to become a regulator for all the reserved legal activities under the Legal Services Act 2007. This will in due course require approval by the Legal Service Board.
The ICAEW is already a regulator for probate activities but this application marks a step change that would enable it to authorise accountancy firms to carry out advocacy, litigation and the other reserved legal activities. This would include authorising accountants as notary publics and enabling them to administer oaths. The proposal raises a number of problematic issues.
The first problem is the avowed intention that the ICAEW will only authorise in relation to taxation services. The scheme of the Legal Services Act does not provide for designating a regulator in relation to part of a reserved legal activity. The ICAEW would have to be designated by the Legal Services Board for the whole thing. It can then provide in policies or rules as to what it proposes to regulate.
This places more pressure on the scope of the authorisation provided to those who are regulated. However, there is no definition in the proposal of taxation services. Whilst it is easy to formulate services that would fall within scope, some other services might extend into grey areas. This is clear from the proposal itself, which seems to contemplate that taxation services would include insolvency proceedings where HMRC is the creditor.
As the proposal states: “The debt recovery cases brought by HMRC in the civil courts can include low-level debt and personal bankruptcy proceedings. This type of work would be within the scope of small firms, as would the strict liability criminal cases brought in the criminal courts (if introduced by the government). Complex, high-level debt cases and defended company winding-up proceedings are more likely to be within the sphere of larger firms, as would complex tax fraud/evasion cases.”
Those that work in insolvency will appreciate that HMRC is a creditor in many insolvency cases. In insolvency the issue is hardly ever about whether the tax is due, otherwise there would not be a debt and HMRC could not bring insolvency proceedings. As such, what seems to be contemplated is authorising accountants to act in relation to a big part of the insolvency litigation and advocacy market. This seems a long way beyond what many would think of as taxation services.
The second problem is the ICAEW’s approach to the reserved legal activities. Whilst the Legal Services Act does not place them in a hierarchy, the reality is that the most sensitive are advocacy and litigation. These are at the heart of the administration of justice and public interest.
The ICAEW’s policy justification for regulating these areas is essentially that accountants know about tax, fraudulent tax schemes and provide litigation support to law firms so they can do litigation and advocacy. The policy proposal does not seem to grapple with the fact that court procedure as a whole is not easily compartmentalised around tax.
The concept that authorisation would be given to specialist subject matter litigators and advocates is not one that has been approved in the past and would seem to need a greater level of justification. The proposed qualification routes for authorisation suggest a syllabus that would include civil and criminal procedure. How this compares to the qualification standards of the other legal services regulators is not made clear.
Because litigation and advocacy are not sector specific, it is difficult to see how an ICAEW authorised person appearing in the High Court should have a lower knowledge base than required by the existing regulators for litigation and advocacy.
The impression of the ICAEW’s approach is not helped by the fact that their proposed regulations for regulating authorised litigators and advocates omits the duty to the court and the administration of justice as an overarching principle (see regulation 3.1).
The third problem is one of timing. The Ministry of Justice is due to consult shortly about legislating to separate the existing legal services regulators from their representative bodies. It is difficult to see why different considerations should apply to the ICAEW as apply to the Law Society and the Bar Council.
If these two bodies are to be separated from the Solicitors Regulation Authority and Bar Standards Board, why would the ICAEW be in a different position if it was regulating all the reserved legal activities?
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