What accountants need to know about providing legal services

Ross Risby and Will Naylor of DAC Beachcroft highlight the key issues for accountants to consider when undertaking legal work.

In the aftermath of the implementation of the Legal Services Act (the Act), accountancy firms of all sizes are considering the creation of alternative business structures, particularly in areas of business advice traditionally provided by law firms.

In January 2016, the ICAEW issued guidance to all members regarding the legal services they can provide in the context of the two categories under the Act: “reserved legal activities”, which may only be provided by a specific group of authorised individuals, and “legal activities”, which can be undertaken by non-lawyers. A year on from that guidance, it is apparent that accountants are reaping the benefits of the legislative changes, but care needs to be taken.

Legal professional privilege

One issue that often arises in the course of advice given by accountants is whether it is subject to legal professional privilege. Privilege attaches to a communication between a client and his legal adviser, which is made either for the purpose of enabling the adviser to give, or the client to receive, legal advice.

The Supreme Court held in January 2013, by a 5:2 majority, that legal professional privilege applies only to legal advice given by lawyers and not to advice given by accountants. While the courts have expressed sympathy with the position of accountants, who routinely are requested to provide legal advisory services to their clients, the extension of the age-old doctrine of legal advice privilege to professionals, other than lawyers, is a matter for parliament to decide.

The Law Society agreed with the Supreme Court’s position and argued that, as accountants do not have the same duties to their clients, it follows that the doctrine of legal privilege should not be extended.

In a response to this the ICAEW previously described the position as “anti-competitive” noting that many accountants are at a disadvantage to lawyers who, in in a modern professional services market place, are providing essentially the same services.

Many accountants, in particular progressive firms who act as trusted advisers to their clients across a range of advisory disciplines, consider that legal advice privilege should be extended to accountants. Indeed, where an accountant and a solicitor give the same advice, only the advice provided by the solicitor will be subject to legal advice privilege. The Supreme Court itself recognised that there was little logic to this but considered that it was not a matter for the judiciary to decide.

Understanding the risks 

In light of this position, accountants need to remain wary of the risk that, while their clients may consider the advice being provided to be “legal” in nature and therefore expect that privilege applies, that may not be the case. The advice may be disclosable to, for example, HMRC with potentially serious consequences.

Accountants also need to be aware of “mission creep” whereby the professional strays into providing advice not intended or anticipated by the original instruction. While accountants are traditionally more aware of the pitfalls of this than other professionals, it still needs to be kept in mind for activities undertaken under the Act; inadvertently straying from conducting authorised “legal activities” into “reserved legal activities” is a recipe for disaster for accountant and client alike.

Accountants should therefore continue to ensure that the scope of the engagement is plain, and that clear retainer letters are issued for each instruction. This is particularly the case where an accountant undertakes a number of tasks for a particular client. It is important that a written retainer is put in place for each task so that the scope of the work to be undertaken is clear for all parties. Clarity of the scope of the retainer at the outset can prevent costly and time-consuming disputes later on.

Moreover, accountants must ensure that their insurers are aware of the types of work being undertaken and that mission creep doesn’t result in practitioners straying into providing advice that they are not authorised to give and for which appropriate insurance arrangements may not be in place. In the unfortunate event of a complaint or claim by a client, the last thing that a professional wishes to hear is that there is doubt as to whether the situation is covered by insurance.

The minimum terms are due to be amended later this year and any amendments will need to be reviewed carefully by practitioners to ensure that insurance arrangements in place are appropriate for their specific circumstances.

Ross Risby is a partner, and Will Naylor is a solicitor, at international law firm DAC Beachcroft.