Those professionals tend to blur the line between the two concepts, which is perhaps understandable given that they are less interested in legal differences than in perceived moral and economic similarities.

But to lawyers the line is, or should be, clear. On one side of the line is conduct which you honestly believe will reduce your tax liability. This covers tax planning or mitigation as well as avoidance. Conduct is avoidance if it is tax-driven, in the sense that reducing your liability is the purpose of the exercise, and in addition (because it would be odd to regard giving up smoking because increases in tobacco duty make it too expensive as tax avoidance) it reduces your liability in a way that conflicts with the policy objectives of the relevant legislation. Avoidance is not a crime, however artificial and aggressive it may be perceived to be, and whether it ultimately succeeds or not. A tax barrister who complies with the cab rank rule will accept instructions from promoters of tax avoidance schemes and HMRC alike, irrespective of his personal opinion of such clients.

The Ramsay approach

Successful tax avoidance has become much harder to achieve in recent years, not only because tax legislation nowadays includes targeted anti-avoidance rules, recently supplemented by a general anti-abuse rule (GAAR), but also because most courts hearing tax avoidance cases will bend over backwards to find in favour of HMRC. One of the tools in the courts’ armoury is the so-called Ramsay approach (WT Ramsay Ltd v IRC [1982] AC 300, (1981) 54 TC 101). In its original form, the House of Lords acknowledged that Ramsay required avoidance schemes to be struck down irrespective of the terms of the relevant legislation (a sort of weapon of mass construction). When it was pointed out that this was unconstitutional, the House of Lords claimed that Ramsay merely brought the interpretation of tax statutes which, it was (incorrectly) stated, had hitherto been construed literally, into line with that of other statutes, which are construed purposively. In addition, it was said, a purposive construction of a tax statute will generally, but not necessarily, involve giving the statutory language a broad practical meaning. For example, avoidance which depends for its success on looking at one transaction in a series in isolation from the others will generally not work. Unfortunately for tax lawyers and their clients, it is extremely difficult to predict whether a particular statute will be held to be amenable to the Ramsay approach. For example, the Supreme Court in UBS AG v HMRC and DB Group Services (UK) Ltd v HMRC [2016] UKSC 13 has recently upheld a Ramsay argument, disagreeing with the Court of Appeal which rejected the argument as having ‘no justification’. Nevertheless, it is fair to say that nowadays most tax avoidance schemes will be held to fail.

Dishonest conduct

On the other side of the line is dishonest conduct, such as failing to disclose a known tax liability to HMRC, which is a crime. The late Denis Healey neatly summed up the difference between avoidance and evasion as the thickness of a prison wall. But despite what I have said about the failure of most avoidance schemes, the fact that a lawyer has built up a lucrative practice based on regularly giving positive advice about the merits of avoidance schemes does not mean that he has crossed the line; it is much more likely that he is over-optimistic, perhaps hopelessly so (although who thought that Leicester would win the league?).


Nevertheless, clients do not always recognise or respect the line, and it is essential that the lawyer not only plays no active part in the evasion, but also does not turn a blind eye to it, and if need be can demonstrate this in the terms of his written advice. After all, if the efficacy of a scheme depends on the existence of certain non-obvious facts, then at the very least the lawyer must qualify his positive advice by a disclaimer to the effect that it is based on the existence of those facts and he has not sought to verify them. Even this may not suffice if there is reason to believe that the facts do not exist. Alarm bells should ring if the lay client begins a sentence with ‘Between these four walls’, and do not stop ringing merely because the lawyer interrupts to express the hope that they will not have to resume the discussion in Ford Open Prison. And the lawyer should not settle the documents for an artificial scheme if it appears that the artificiality consists, not merely in the scheme as a whole, but also in the rights and obligations purported to be created by the documents, so that they may amount to a sham designed to deceive HMRC.

Even if the client is totally honest, there is one particular area where the line between avoidance and criminal misconduct may be unwittingly crossed. Suppose that the lawyer advises the client that he has no tax liability because the avoidance scheme works a treat. The client completes his tax return accordingly. Later, however, HMRC challenges the scheme and the court upholds the challenge. You may be surprised to learn that if the tax liability relates to offshore income or assets and exceeds £25,000, the client may be guilty of a new criminal offence to be introduced by the Finance Act 2016, the punishment for which includes imprisonment (in England and Wales, up to 51 weeks, but in Scotland and Northern Ireland, where time passes more slowly, only six months). HMRC has explained that the new offence is part of a drive against offshore tax ‘evasion’, but ‘to make prosecution easier’ there is no need to prove intent! All the prosecution has to prove is that the client got his return wrong: it is not necessary even to prove carelessness, let alone dishonesty, although it is a defence for the client to show that he took reasonable care (this may breach Art 6(2) of the European Convention on Human Rights). The client’s reliance on the lawyer’s advice may not suffice if it was hopelessly over-optimistic.

Lawyers in the dock?

Could the lawyer also end up in the dock, as an accessory? The prosecution would have to prove that the lawyer knew of the ingredients of the client’s offence, including that he had got his return wrong, so it is difficult to see how an honest lawyer would be guilty, however incompetent he may be. The client may end up in prison, but the lawyer will not (except when he visits his client, which is the least he can do).

Contributor Kevin Prosser QC, Pump Court Tax Chambers