Keeping your tax work and advice professional
Mark Lee introduces the latest official guidance as to professional conduct in relation to taxation especially in the context of tax planning advice.
The latest version of ‘Professional Conduct in Relation to Taxation’ (PCRT) was issued by the UK’s main professional accounting and tax bodies on 24 February 2014. Developments over the last three years have necessitated some significant changes to this guidance.
PCRT is intended to assist and support accountants and tax advisers as regards how they apply the fundamental ethical principles to tax-specific situations especially concerning their relationship with clients and with Revenue authorities.
The previous version of PCRT, on which I commented for AccountingWEB in 2011, had itself benefitted from a substantial rewrite that cut the length of previous guidance by more than 50%. It still ran to under 10,000 words. The new version is longer than this but is still significantly shorter than previous versions.
I used to be one of the ICAEW’s representatives on the joint working party that updates this guidance. I stood down a couple of years ago after contributing to the previous two or three updates. I did offer some thoughts on a draft of the latest version that I was shown last summer and am pleased to note that my observations have been addressed, as have those of other interested parties who commented at that time.
There are a number of updated or new sections in the guidance. The underlying principles have not changed of course but the circumstances in which these need to be considered have certainly evolved in recent years.
The guidance is based on five fundamental principles that should underpin all that professionally qualified accountants and tax advisers do:
- Professional competence and due care
- Professional behaviour
The questions that are addressed concern how to apply these principles to routine and not so routine practical situations, for example, if there appears to be an irregularity in a client’s tax affairs and the client is reluctant to discuss or to correct it. Being principles led the guidance does not attempt to address an exhaustive list of all circumstances which might create threats to compliance with the fundamental principles.
The guidance does make clear that accountants and tax advisers have an obligation to advise their clients accurately and thoroughly of the risks and implications of their actions. This includes addressing reputational and practical issues.
Ultimately accountants who can show that they complied with the guidance should be protected from successful allegations of unprofessional conduct. Conversely those who operate contrary to the guidance are at greater risk of successful negligence claims and of being found to have brought the profession into disrepute.
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Professional competence and due care
The following points, which have long formed part of the guidance have been further clarified in the light of recent case decisions including Mehjoo v Harben Barker:
“A member has a professional duty to carry out his work within the scope of his engagement and with the requisite skill and care.
A member must carry out his work with a proper regard for the technical and professional standards expected. In particular, a member must not undertake professional work which he is not competent to perform unless he obtains appropriate assistance from a suitably qualified specialist.”
And supplemented by the following clear statements:
“A member is free to choose whether or not to act for a client both generally and as regards specific activities. However where a member chooses to limit or amend the scope of services he provides to a client he should make this clear in writing.
When advising a client a member has a duty to serve that client's interests within the relevant legal and regulatory framework and provide him with appropriate advice on managing his tax affairs.
Advice should be tailored to the commercial and other non-tax objectives and facts and circumstances of the client.”
Tax planning, tax avoidance and tax evasion
The most potentially controversial issues addressed by the updated guidance are a response to the growing coverage of tax avoidance/tax evasion in the media. This has led to greatly increased public interest and concern about aggressive tax avoidance and tax evasion. The professional bodies were also keen to address increased concern from their members about how they should conduct themselves and what advice they should give in this area.
This last point is one I have addressed previously as I have long challenged the views of those promoters and commentators who claimed that accountants have a duty to notify all clients of the existence of aggressive tax avoidance schemes. See: Tax schemes: what do you tell clients? and Accountants discouraged by ICAEW from advising on aggressive tax schemes
Many of those who still think it appropriate to quote the decision in the 1936 Duke of Westminster case will be disappointed by the latest guidance. What constitutes acceptable behaviour by professionals who wish to help clients pay less tax is no longer the same as it once was.
To show how far things have moved let me quote from chapter eight of the updated guidance:
“Between these two reasonably clear principles [tax evasion and tax planning] is tax avoidance, a concept less capable of easy definition. Involvement in tax avoidance could subject the client and the member to significantly greater compliance requirements, scrutiny or investigation as well as criticism from the media, Government and other stakeholders.
The definition of avoidance is an evolving area that can depend on tax legislation, the intention of Parliament, interpretations of case law and the varying perceptions of different stakeholders. Ultimately, only the courts can determine whether a particular piece of tax planning is legally permissible or not. Members are advised to consider the contents of this chapter carefully when advising clients in respect of any tax planning or avoidance arrangements.”
“In the event that a member advises on a tax planning arrangement which may potentially be construed as avoidance, the member should give extra attention to advising on the risks and implications….and should only recommend the planning for the client’s consideration based on balanced advice taking into account any potential risks.”
Ros Upton, chair of the working party which produced the guidance, and council member of the Chartered Institute of Taxation (CIOT), said:
"The updated ‘Professional Conduct in Relation to Taxation’ gives clear, concise and practical guidance which will help tax advisers when dealing with difficult situations such as what to do when a client refuses to make a full disclosure to HMRC or receives an excessive repayment. It expands the existing guidance on areas including tax avoidance and the new General Anti-Abuse Rule."
HMRC has been consulted and acknowledges that this guidance is an acceptable basis for dealings between accountants/tax advisers and HMRC.
Other areas of PCRT that are new or updated include:
- Reference to issues relating to electronic filing (end of chapter three)
- Guidance on dealing with situations where HMRC bypasses the member/agent and goes straight to the client (chapter four)
- Dealing with clients who wish to take advantage of voluntary disclosure facilities and other special arrangements for rectifying their tax affairs (new chapter six)
- Guidance on the new General Anti-Abuse Rule (chapter eight)
- Points to consider when HMRC wants to visit the member to discuss practice matters e.g. as part of agent and client statistics (chapter 10)
- Professional standards relating to participating in consultations or secondments with HMRC (new chapter 11)
The 2011 update to the guidance came in for some stick from people who did not appreciate the range of issues it addressed and who would have preferred a simple short statement of principles. That was unrealistic in 2011 and is even less feasible now. If only life were that simple.
Members of the working party
The working party that updated PCRT comprised representatives from the six bodies listed below. Each followed their own internal procedures to review the draft and then the final guidance which they all now endorse:
- The Chartered Institute of Taxation
- The Association of Taxation Technicians
- The Association of Chartered Certified Accountants
- The Institute of Chartered Accountants in England and Wales
- The Institute of Chartered Accountants of Scotland
- Society of Trust and Estate Practitioners
Mark Lee is consultant practice editor of AccountingWEB. Beyond this he facilitates an Inner Circle group for accountants, is a regular speaker on professional business development issues and is chairman of the Tax Advice Network of independent tax specialists.
These days Mark Lee focuses his business actiities on two key activities:
1 - He loves being engaged to speak on stage to audiences of accountants in all size of firms. His latest keynopte talk is: The rise of Robo-Accountants - and how to beat them. He is an accountancy focused speaker, futurist and influencer with a positive reputation...