Revised PCRT warns against tax planning

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Mark Lee urges accountants to read the latest professional guidance which contains new standards relating to tax planning advice.

Seven accounting and tax bodies have just published an updated version of Professional Conduct in Relation to Taxation (PCRT). Its content warrants your attention even if you’re not a member of any of the seven bodies concerned (AAT, ATT, ACCA, CIOT, ICAEW, ICAS and STEP).

I have reported on earlier updates to PCRT in 2014 (Keeping your tax work and advice professional) and in 2011 (Unprofessional conduct in tax work).

Recap

The PCRT is intended to assist and support accountants and tax advisers in applying their fundamental ethical principles to tax-specific situations; especially those concerning their relationship with clients and with the Revenue authorities.

It has long contained helpful guidance as to the approved professional way to handle difficult situations. These include client complaints and challenges from HMRC. For example PCRT explains what accountants should do:

  • If clients are unwilling to make full disclosure to HMRC
  • If clients receive requests for information from HMRC, explaining the pros and cons of alternative responses, depending upon whether the request was informal or statutory in nature
  • If they become aware of any irregularities or errors whether made by the client, themselves, HMRC or anyone else

Members’ obligations

In setting out how to deal with such matters PCRT also imposes obligations on members to follow a professional approach when advising on tax matters. In this respect PCRT is an extension of each of the professional bodies' membership handbooks. 

What makes PCRT different is that it is jointly published and updated by seven professional bodies. This means there is only one generally agreed guide as to what constitutes professional and ethical behaviour when it comes to tax matters in the UK.

Collaborative process

Updates to the PCRT are discussed by a pan-institute group that has to obtain agreement from each of the professional bodies, consider feedback, and resolve disagreements. I used to sit on that group on behalf of ICAEW. It can take well over a year before updates are eventually agreed by all the constituent bodies.

I mention all this to make clear that the updates have to achieve a consensus across all of the members, councils and staff involved in the process on behalf of each of the seven professional bodies. I recall the process was rarely straightforward as vested interests often became apparent.

Each update generates complaints and concerns from some members of the professional bodies. Most such feedback comes from those who were unaware of the guide’s history and how it has evolved and improved over the years.  

Technical competency

The PCRT has long stated that each 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
  • A member who is giving what he believes to be a significant opinion to a client should consider obtaining a second opinion to support the advice"

If you give duff advice and it becomes apparent that you ignored those obligations, you could well be subject to allegations of negligence, and potentially disciplinary action by your professional body.

I have been reminding accountants of these points for years in my talks on how to avoid professional negligence claims. I established the Tax Advice Network to provide general practitioners with access to suitably qualified independent tax specialists who can provide those second opinions.

Big change

The latest version of the PCRT contains one fundamental change - an agreed response to HM Treasury’s demands that the profession should take action to tackle the creation and promotion of tax avoidance schemes, and address the integrity of those who devise and promote ‘abusive’ tax avoidance schemes.

I have seen some concerns expressed that the new statement in the PCRT will prevent accountants giving clients advice on tax planning. This seems unlikely.

I have spoken to many tax specialists and they are unconcerned by the latest changes to PCRT. One high profile and well respected general practitioner, was quite emphatic. He told me that nothing in the new guidance would have any impact on the advice he has been giving clients over the years nor on the advice he will be giving in future. 

New standards

The latest version of PCRT adds five new standards for tax planning to strengthen the five fundamental principles (integrity, objectivity, professional competence and due care, confidentiality and professional behaviour) that have formed the core of the guidance for many years.

The guide then includes some detailed guidance on the boundary between tax planning and tax avoidance. Paragraph 2.29 says:

“Members must not create, encourage or promote tax planning arrangements or structures that i) set out to achieve results that are contrary to the clear intention of Parliament in enacting relevant legislation and/or ii) are highly artificial or highly contrived and seek to exploit shortcomings within the relevant legislation”.

We all know that the ‘clear intention of Parliament’ isn’t always obvious when new tax laws are enacted. But the second strand of the new prohibition is clearly unambiguous in it’s focus. This also reflects the public mood and is presumably intended to reduce the legitimacy of criticisms that it is ‘accountants and tax advisers’ that are helping rich people and big businesses to avoid paying the ‘fair amount of tax’.

The new guidance also advises tax practitioners to draw clients' attention to where the law is materially uncertain or where HMRC are known to take a different view of the law.  

Each version of the PCRT has been endorsed by HMRC as providing an acceptable basis for dealings between tax advisers and HMRC.

Will the latest guidance mean you have to do anything differently?

About Mark Lee

Mark Lee 2017

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 for entertaining, engaging and enthusing his audiences.

2 - He loves supporting savvy sole practitioners who want more out of their practice.  More clients, more money, more time, more satisfaction - or everything!

An accountant by profession, Mark moved away from the provision of professional advice in 2006.   He is now a professional speaker, mentor, author and debunker.

Mark is passionate about helping accountants generally so is a keen blogger and commentator in the accounting and tax press. He has been consultant practice editor of AccountingWEB and has written hudnreds of articles here that have been viewed over a million times.

Check out how he could help you here: www.BookMarkLee.co.uk/savvy

Mark no longer gives tax advice despite being a past Chairman of the Chartered Accountants’ Tax Faculty. He is however Chairman of the Tax Advice Network - the UK's highest ranked lead generation website for tax advisers and accountants. The network also publishes a weekly practical tax update for accountants in general practice and full tax support, on demand too.  You can also use it as a lead generation resource for local people seeking tax advice from an accountant.

Mark has extensive network reach through his blog, talks, social media activity, articles and his regular 'Magic of Success' tips and tricks email that goes to thousands of accountants every week.

Replies

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By Gav2013
14th Nov 2016 10:45

It's kind of obvious really, unless you are some kind of idiot and should probably be sanctioned under a mental health act for the general protection of the public and yourself.

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14th Nov 2016 11:22

Most never read the rule book anyway and the extra bit is surely just a clarification of what the core principles actually meant for those that didn't read or understand and probably will not read again. Nothing is going to change unless there are actually some hangings. The payment of commissions alone is a breach professional rules especially if you hive this off through another company thus admitting your guilt.

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14th Nov 2016 11:34

I expect the large firms auditing the likes of several big multi national companies will now immediately resign, having devised schemes that shunt profits to low or zero tax jurisdictions for years in clear contravention of the way the law was intended to operate?

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to Ian McTernan CTA
14th Nov 2016 11:44

You mean HMRC agreed transfer pricing arrangements?

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14th Nov 2016 12:14

i) set out to achieve results that are contrary to the clear intention of Parliament in enacting relevant legislation and/or ii) are highly artificial or highly contrived and seek to exploit shortcomings within the relevant legislation.

I think we would all recognise ii) but how do we determine what are "results that are contrary to the clear intention of Parliament in enacting relevant legislation?". There seems to be no guidance on that issue within the guidance.

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14th Nov 2016 12:14

Extract from above

“Members must not create, encourage or promote tax planning arrangements or structures that i) set out to achieve results that are contrary to the clear intention of Parliament in enacting relevant legislation and/or ii) are highly artificial or highly contrived and seek to exploit shortcomings within the relevant legislation”.

Hopefully if we do not pedal tax avoidance schemes we should be okay, probably not, but if you have nothing to do with tax avoidance schemes we should be okay....I hope.

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to AndrewV12
14th Nov 2016 14:43

[quote=AndrewV12]

Extract from above

“Members must not create, encourage or promote tax planning arrangements or structures that i) set out to achieve results that are contrary to the clear intention of Parliament in enacting relevant legislation and/or ii) are highly artificial or highly contrived and seek to exploit shortcomings within the relevant legislation”.

clear intentions now thats a challenge, if we are so good at that....................

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By Nemesis
to AndrewV12
15th Nov 2016 22:18

That is right. You will know if you are trying to game the exchequer.

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14th Nov 2016 12:27

It's common sense that setting up anything artificial is evasion and not avoidance (so why aren't the people that set these schemes up prosecuted?). I can't help thinking that perhaps parliaments intention is to get as much income as possible regardless of the circumstances, which means any sort of avoidance is not allowed.

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14th Nov 2016 15:08

"Members must not create, encourage or promote tax planning arrangements or structures that i) set out to achieve results that are contrary to the clear intention of Parliament in enacting relevant legislation and/or ii) are highly artificial or highly contrived and seek to exploit shortcomings within the relevant legislation."

Obviously (ii) is aimed at tax schemes and artificial planning, that we all try to steer away from, but (i) seems to imply we need to review Hansard and what Parliament discussed when passing the law.

Clearly that is unworkable.

Even the most basic tax planning would seem likely to raise questions under (i). How can we easily find out what Parliament intended in these instances?

Hopefully the professional bodies will provide very full and comprehensive guidance before this comes into effect.

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to alan.rolfe
14th Nov 2016 16:07

Alan, I think it's fairly obvious that any sort of tax planning is out of the window.
"Hopefully the professional bodies will provide very full and comprehensive guidance before this comes into effect." Now there's a laugh. Or is that how you meant it to be?

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to johnjenkins
14th Nov 2016 18:00

Guidance... yes, just joking!
Wish it wasn't a joke, though.

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By Nemesis
to alan.rolfe
15th Nov 2016 22:22

actually HMRC's experience of operating the banking code of practice is that agreeing the intentions of parliament is not as problematic as it is often claimed to be.

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to johnjenkins
15th Nov 2016 09:45

Continuing Professional Development webinar – An update on the new CIOT and ATT requirements – 17 November 2016 – 2.30 to 3.30pm

This webinar will be presented by those working in various areas of taxation who will bring their practical perspective on the new regulations and the queries members may have. You can watch this webinar by using the following link: https://www.lexisauditorium.com/stage.aspx?c=c1013e11-e1cc-4ef2-af4a-c64..., You can check the link works now, but you do not need to register – just participate on the day.

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14th Nov 2016 16:25

how does this sit with the Westminster doctrine?

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15th Nov 2016 15:43

@alan.rolfe

"Even the most basic tax planning would seem likely to raise questions under (i). How can we easily find out what Parliament intended in these instances?

Hopefully the professional bodies will provide very full and comprehensive guidance before this comes into effect."

The point that you make in your first paragraph is shared by me and others.

It seems to me that there is no easy, or practical, way, or sometimes any way at all, to determine what Parliament's intention was at the time legislation was introduced. As to the second point we will need very clear guidance from HMRC and lots of examples from HMRC (not the professional bodies) illustrating the types of planning that they find acceptable and the type that they deem unacceptable. They managed to do this (to some extent) with the GAAR and there is no reason why it should not be done here.

As starter, and as an example perhaps we could ask HMRC (or the institutes) to explain what Parliament's clear intention was when introducing the potential restrictions to CGT entrepreneurs relief at TCGA 1992 S169P(4)(a)to (d) for an associated disposal, while there would be no restriction of relief if the same asset was held within a partnership and qualified for relief under say S169I(2)(b) and 4, and whether advising a client to introduce an asset into a partnership to avoid the potential restrictions at S169P would be "contrary to the clear intention of Parliament in enacting relevant legislation"

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15th Nov 2016 18:51

Can anyone tell me if Lord Clyde's dictum is stll valid: '"No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue"

I thought I knew the difference between tax avoidance (legal) and evasion (illegal) but now I'm not so sure. On 11 July Theresa May said: 'So as Prime Minister, I will crack down on individual and corporate tax avoidance and evasion.' She didn't distinguish between the two. And then at her Conference speech she said: 'If you’re an accountant, a financial adviser or a middleman who helps people to avoid what they owe to society, we’re coming after you too.' Does this mean that if anyone gives advice on legal methods of tax avoidance they are in the firing line? And what about ISAs? Aren't they tax avoidance? And SIPPS which can be bequeathed free of IHT up to age 75? Are they tax avoidance? Is this the end for the SEIS arrangement (and start-up equity crowdfunding)? Exactly how does one navigate this new world?

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By Nemesis
to C.Y.Nical
15th Nov 2016 22:26

Sorry this is a common error. A legislative relief, allowance, tax favoured product or similar are clear parliamentary intentions. As such they cannot of themselves be at risk, unless exploited in some inappropriate way.

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to Nemesis
16th Nov 2016 12:36

Well you may think it's a common error, and I agree that in the past it was relatively simple to distinguish between avoidance (legal arrangements including ISAS, SIPPS etc.) and evasion (illegal contrived or artificial arrangements) but please read again what Theresa May actually said. The use of things which are 'clear parliamentary intentions' to avoid paying tax may no longer be something on which advice can be given if Theresa May said what she meant and meant what she said.

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to Nemesis
17th Nov 2016 11:26

@ nemesis I agree but the difficulty will be in determining parliaments intention (how do we do this - do any contributors know) and in deciding what is an appropriate use of reliefs - see for example my example above relating to CGT entrepreneurs relief. Associated disposals under s169K are subject to the restrictions at s169P(4) but disposals under s169I(2)(b) and (4) are not. Parliament intended that the relief should operate in both ways. Is it then acceptable planning to re-arrange your affairs so that you fall within s169I and not s169K?

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16th Nov 2016 09:58

FFS it's quite clear always has been. You need to google contrived! That's not the same as the Duke of Westminsters coal shovel.

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16th Nov 2016 11:19

excellent reminder/ "walking the plank" much more
difficulty than Diving straight in ?

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16th Nov 2016 12:56

Scenario.
Business deliberately keeps turnover below VAT threshold. (For whatever reason) That certainly is avoidance tax planning) and creating an artificial situation. The reason why I mentioned this is that through MTD, HMRC are seeking to force business to change the way they keep business records so following on and keeping in mind the need for Parliament to get as much as possible out of business, these tax payers could be targeted.

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By lme
21st Nov 2016 09:40

Thanks, Mark. I think that abuse is institutionalised in some sectors. At my last two tax lectures, the lecturers have raised suggestions which I think are at odds with PCRT. I think it could be much harder to climb back up a slippery slope than it is to slip down it, and we should beware underestimating the amount of effort needed to recover culture and practice to be consistent with the new PCRT, where it arguably should have been all along.

Of course, it would be enormously helpful if the government would write clear law, start enforcing or taking cases to clarify grey areas and simplify tax. But in the absence of anything useful from the government, we still have a profession to try and maintain.

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28th Apr 2018 07:46

Awesome post. Thank you.

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