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Professional Conduct in Relation to Taxation: a tax perspective on ethics

Author: ICAEW

Published: 29 Nov 2024

ICAEW’s Conduct Department is dealing with a growing number of disciplinary cases related to poor conduct in relation to tax matters. We look at the key role played by Professional Conduct in Relation to Taxation (PCRT) in setting boundaries and supporting members and firms in meeting their professional and ethical obligations by providing guidance.

As an improvement regulator, ICAEW is committed to protecting the public’s interest by helping firms to uphold the standards expected by the profession, oversight regulators and government in the accounting profession. One important area that many ICAEW members and member firms deal with is tax,  and the Professional Conduct in Relation to Taxation (PCRT) (updated 1 January 2023) is at the heart of ensuring that members and firms dealing with tax matters work professionally and ethically.

The document, which was first published in 1995, is regularly updated to reflect the changing tax landscape, most notably in 2017 when the Standards for Tax Planning were introduced to address public and government concerns about aggressive tax avoidance.

“Tax is always on our radar,” says Carrie Langridge, Head of General, Compliance and Tax Investigations at ICAEW. “It's very fundamental to accountancy. Everybody pays tax and everybody is very sensitive to how much tax they pay. There’s also a very fine line between what is acceptable to mitigate tax expenditure and what is not acceptable. And that’s where PCRT becomes so important. It is important that firms and advisers stay abreast of what is allowed when it comes to acceptable tax mitigation to remain compliant with current standards.”

PCRT sets out the Fundamental Principles and Standards for Tax Planning that all members are expected to follow and establishes the ethical standards forming the core of the relationship between tax advisers, clients and HMRC. It is intended to guide behaviour and help those advising on tax  to do so ethically and appropriately. The document is developed jointly by seven professional bodies and associations across the sector to ensure standards are consistent and clear.

“What PCRT does for our members and firms is to take ICAEW’s Code of Ethics, which all members have to comply with, and frame it within a tax perspective,” says Carrie. These standards include acting with objectivity and integrity, making sure you are competent to do work, respecting confidentiality and behaving professionally.

“PCRT focuses not only on the tax work completed for clients, but also on personal conduct in relation  to an adviser’s own tax affairs,” she adds. “And that's important because, from a disciplinary perspective, we don’t only look at the services you provide to your clients or your employer, but also at how you conduct yourself.”

Compliance with PCRT is mandatory for firms and members advising on tax and failure to comply may result in disciplinary action, and also reputational damage.

Drawing lines

The revisions to PCRT that came into effect in 2017 were a response to the government’s challenge to professional bodies to take a greater lead in setting and enforcing clear professional standards around the facilitation and promotion of tax avoidance.

“As regulators, we got together and discussed the issues, in particular where the fine line between what's acceptable and not acceptable falls,” explains Carrie. "The outcome was the introduction of a new set of standards within PCRT. One of the most significant of these standards states that:

‘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.’

“Something else the standards address is how the advice you give to a client must be specific to the client and their particular circumstances,” says Carrie. “And it needs to be documented. You need to say why you have reached the conclusion that a scheme is appropriate for your client and their risk profile. The decision is ultimately down to the client, but if you’re providing advice, you must ensure you make them aware of the risks specific to them for entering into any tax planning.”

Conduct issues aren’t limited to an accountant designing, entering or advising others to enter a scheme that is contrary to PCRT standards. “PCRT also covers promoting such schemes,” explains Carrie. “If you promoted a tax planning scheme – and allowed yourself (as a chartered accountant) to be associated with it – that in itself can open you to disciplinary action. It's not enough to say: ‘I only put details of the scheme on my website; none of my clients entered into it.’ You are ultimately accountable for it.”

“Another area where PCRT is very clear,” she adds, “is what you should do if you identify errors in tax work. This doesn’t just cover errors in tax work you or another accountant might have made; it also applies if you identify an error HMRC has made.”

Time lag to cases

The focus of PCRT is on the behaviour of the adviser, not the tax outcome for the client. “If we are notified of concerns about behaviour related to tax work, we will take into  account the principles and standards in PCRT in place at the time of the conduct when deciding whether or not to take disciplinary action,” says Carrie. “From a conduct perspective, we look at what the member or the firm was responsible for and what they did that may have breached PCRT ,” she explains. “And the introduction of the 2017 standards in PCRT helped that process by creating clearer boundaries for everyone involved.”

The new additions only applied to actions taken after the revised PCRT came into effect in March 2017, which partly explains why the Conduct Department is now seeing more PCRT related cases now. “We have always been interested in members entering or designing tax avoidance schemes. And if that work took place after 1 March 2017 then it is subject to the rules of PCRT,” she says, “ the nature of tax work means there is always a time lag.

“Tax issues generally surface a while after the event,” explains Caroline Turnbull-Hall, Senior Regulatory Policy Adviser at ICAEW. “This is partly because when a transaction happens or planning is entered into, it will only be reflected in the tax return submitted to HMRC the following year. Then HMRC has at least a year, in which to make further enquiries.”

“We always knew there would be a bit of a time lag in us getting disciplinary cases through,” says Carrie. “And that is what is happening now. We've reached the point where some of the tax mitigation schemes or tax work that's been completed post 2017 has started to move through the process. Many of the areas covered within the revisions to PCRT are now being reflected in the action we have either got in progress or have taken through the Conduct Department.”

Staying compliant

Carrie and Caroline have several key pieces of advice to help members ensure they continue to undertake tax work effectively, appropriately and ethically. Their fundamental advice, applicable far beyond tax planning, is that, “if something looks too good to be true, it probably is”.

Beyond this, they advise reading and staying familiar with the contents of PCRT. It is a living document, which you should be using as a guide to check your working practices adhere to the requirements. To support the overarching document, there are also also six supplementary help sheets (added in 2019)  that delve into more detail in areas such as tax filings, tax advice and dealing with errors.

As well as keeping yourself informed about the requirements in PCRT, Caroline highlights the importance of staying technically up to date. “Tax legislation moves very quickly,” she stresses. “It’s a constantly evolving area and you have to stay on top of developments to make sure you’re giving correct and up-to-date advice.” She also recommends keeping an eye on information or blogs you post on your website, so that this remains accurate and reflects current advice, for example HMRC pronouncements on tax planning schemes.

“Keeping technically up to date is very important,” agrees Carrie. “Tax issues, and particularly tax avoidance schemes, are complex. You do really need to know your tax. So, if you don't understand these schemes, don't get involved with them. We often talk in the Conduct Department about the importance of ‘knowing what you don't know’. Even someone who's a tax specialist would often struggle to know all of the ins and outs of all taxes, and no one wants to be giving advice on something they don't understand.”

One of the related issues here can be that accountants simply want to keep clients happy. “Sometimes it's just an eagerness to please, and to do what your client wants,” says Caroline. “But if the advice given is incomplete or incorrect, that’s not supporting a client or acting in their best interests.”

If you have any doubts about whether or not your circumstances are impacted by PCRT, you should seek further advice. A good place to start is ICAEW’s tax query hub. “We're never going to be able to encompass every possible scenario or situation in our written guidance,” says Carrie. “So, if you've got specific scenarios or situations where you need some help, then reaching out and getting external guidance is the best route. And if the situation is such that you’re not confident with what the client requires, it’s sometimes better to say ‘no’ to a client.”

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