In any area where the results of tax analysis produce apparently surprising and/or beneficial results, the adviser needs to advise the client dispassionately, objectively and fully (including in relation to the costs and risks of HMRC challenge and any similarly foreseeable results). This would include exploring the substantive nature (or, at the opposite end of the spectrum, artificially) of the arrangements proposed: balanced advice, which covers such risks, as distinct from encouraging the client into such arrangements, should not amount to the creation, promotion or encouragement of arrangements that are against the clear intention of Parliament or seek to exploit shortcomings in the relevant legislation.
What if the situation is more borderline, don't we still have to advise our clients?
I work in Industry & Commerce. Occasionally I am required to provide the Board with a view based on the tax risk involved in a transaction. If the Board takes a different view which breaches PCRT would that leave me vulnerable to disciplinary action?
The focus of PCRT is the behaviour of the member who is advising, whether in-house or from an external firm, acknowledging that it is the client (or employer) who gives the final decision having heard the advice. The key new standard talks about the member not 'creating, encouraging or promoting' certain arrangements. Generally, if the member, whether in-house or external, is focussed on giving advice which is well-balanced, thorough, dispassionate and objective, then it will not amount to the creation, encouragement, or promotion of such dubious arrangements. The danger arises when the adviser steps out of that dispassionate role into the role of a promoter, and when the things promoted - leaving aside the issue that they may well not work and may rebound to the detriment of the employer or client - are undermining to the health of the tax system. There is a particular issue that while the principles of PCRT should apply to all members, much of the specific language tends to presuppose an external adviser, and we will be looking, with the other bodies, to address that in the next edition of PCRT.
Is it acceptable under the new standards in PCRT to make referrals to another adviser whom I know offers planning which could be considered to be highly artificial or highly contrived and seeks to exploit the shortcomings within the relevant legislation?
Under the new standards a member must not 'create, encourage or promote tax planning arrangements or structures that ....... are highly artificial or contrived and seek to exploit the shortcomings within the relevant legislation'.
If a member refers clients to another adviser expressly so that they can benefit from such planning it is quite probable that this behaviour would be considered to be encouraging behaviour which is in contravention of the above standard. (Note however, that for members of the ATT it is the Taxation Disciplinary Board who would decide the case.)
If the member is uncertain whether the planning being offered by the other adviser is highly artificial or highly contrived and decides to refer he should make the client aware of the risks associated with aggressive planning, including probable challenge by HMRC and potential damages to reputation.
Where possible, when making a referral a member should offer a choice of advisers and if any payment is received for the referral this must be disclosed to the client. These obligations are set out in more detail at 7.5 'Referals to another professional adviser' and 8.3 'Disclosure of commission' in the pre-existing Professional Rules and Practice Guidelines.
How do I know what the clear intention of parliament in enacting relevant legislation was?
Discerning the intention of parliament at the time that the legislation was enacted is likely only to be an issue where more complex or ground breaking planning is concerned. In such cases the legislation and any associated explanatory notes issued at the time of enactment should prove sufficient. Only rarely is it necessary to consult Hansard.
Members will not be expected to second guess what the clear intention of parliament was. If the intention of parliament was genuinely unclear at the time of enactment then a member cannot be disciplined under part 1 of new standard 4:
'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.......'
What should I do if a struggling client seeks to take unfair advantage of Government support measures during the COVID 19 emergency?
No tax adviser should engage in assisting a client to abuse any of the unprecedented Government support for businesses and individuals in this emergency, including use of ‘Time To Pay’ arrangements. Advisers should fully explore what support is available for their client’s actions ethically and within the law.
They must at all times act within the requirements of Professional Conduct in Relation to Taxation (PCRT) in handling the tripartite relationship between themselves, their clients (or employers in the case of in-house advisers) and HMRC. In particular they must ensure that:
- all planning advice is based on a realistic view of the facts and credible interpretation of the law (the second standard of UK tax planning advice);
- they do not create, promote, or encourage arrangements that seek to achieve results contrary to the clear intention of Parliament in enacting the legislation, or that are highly artificial or highly contrived and seek to exploit shortcomings in the legislation (fourth standard); and
- they document any difficult judgments that they make in interpreting these rules (fifth standard).
See especially PCRT paras 3.2 and 3.9-3.11.
If advisers become aware of things that give them reasonable grounds to suspect there has been a financial crime, including tax evasion, they need to consider making a Suspicious Activity Report (SAR) to their firm’s Money Laundering Reporting Officer, or direct to the National Crime Agency (NCA) if they are a sole practitioner. Further guidance can be found in the AML Guidance for the Accountancy Sector on the ATT website and on the NCA website.
Tax advisers should also ensure they do not commit an offence under s 328 of the Proceeds of Crime Act when assisting a client:
“A person commits an offence if he enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person.” The proceeds of tax evasion constitute criminal property and the penalty for such an offence is a fine or a prison sentence of up to 14 years or both.
As a concrete example, can I help my client maximise the amount of VAT that can be deferred by recognising more output VAT in the relevant quarter?
There are very detailed VAT rules defining what constitutes a VATable supply and the time at which it is deemed to occur. Purporting to recognise output VAT on supposed supplies outside these rules is not appropriate - and indeed might constitute fraud or other financial crime. In some cases, the outcome of operating the rules can be influenced by matters within the taxpayer’s control: for example where there are ongoing supplies, the timing of the supply can be affected by when invoices are issued. Advising on these rules, and matters such as the timing of issuing invoices on genuine supplies, is entirely legitimate. Professional rules require advisers to stick to giving advice, and not to create, promote, or encourage arrangements that are contrary to the clear intention of Parliament in enacting the legislation, or are highly artificial, or highly contrived, and seek to exploit shortcomings in the legislation.
What should I do if my client has instructed their furloughed employees to continue working for the business?
You should advise the client that instructing employees to work while furloughed is in contravention of the terms of the Coronavirus Job Retention Scheme. If, despite your advice, the client refuses to tell their employee to stop work you must cease to act for the client – see PCRT Helpsheet C: Dealing with errors as your client is acting contrary to the law.
You will also need to consider your anti-money laundering reporting obligations. These will depend on whether there are proceeds of crime. If you believe that your client made an innocent mistake and corrected matters straightaway as soon as you advised them, then it is unlikely there are proceeds of crime and a report is not required.
If, however you believe your client was fully aware of the restrictions on employees working for them while furloughed, then you should report the matter to your firm’s Money Laundering Reporting Officer because the client has knowingly claimed government funds to which they are not entitled. Money received under the scheme in such circumstances constitutes proceeds of crime.
If you are the firm’s MLRO/a sole practitioner, you should submit a suspicious activity report to the National Crime Agency.
I work for HMRC and I comply with the Civil Service code and values. Do I also have to comply with PCRT? Do I need to confirm that I comply with it in my Annual Return?
Members working for HMRC are obliged to comply with PCRT. Please see the final bullet of paragraph 1.7 of PCRT:
“1.7 While the content of the PCRT is primarily applicable to members in professional practice, the Fundamental Principles and Standards apply to all members who practise in tax including:
- Employees attending to the tax affairs of their employer or of a client; and
- Those dealing with the tax affairs of themselves or others such as family, friends, charities etc whether or not for payment; and
- Those working in HMRC or other public sector bodies or government departments.“
Although those working for HMRC are not acting for employers or clients who are taxpayers, so much of the detailed guidance is inapplicable, all members are bound by the Fundamental Principles of Integrity, Objectivity, Professional competence and due care, Confidentiality and Professional Behaviour.
There is a very significant overlap between the behavioural requirements of the Civil Service Code and the Fundamental Principles. Moreover, the Code has been drawn up in detail with a view to the application of those principles in the context of civil service work. We would therefore normally expect that a civil servant following the Code would be acting in conformity with the Fundamental Principles, and that the Annual Return question should be answered accordingly.
It is most unlikely that there would be conflicting obligations but should such a situation arise you should contact the standards [at] att.org.uk (Professional Standards team).
How does the ‘Guidance for solicitors advising on tax’ affect me as a member of the ATT?
Members who are solicitors may have seen the ‘Guidance for solicitors advising on tax’ issued on 24 August 2020 by the Law Society. It states that
‘….. solicitors that are subject to the PCRT because they are members of one of the signatory professional bodies should therefore comply with the obligations and duties required by the SRA and covered in this guidance in priority over the PCRT.’
When PCRT was drafted the professional bodies involved were alert to challenges that members who were also solicitors and barristers might face if the professional rules of solicitors or barristers and those imposed by PCRT were to conflict. A much discussed example was the barristers’ cab rank rule. The approach adopted is set out in 1.6 of PCRT.
‘Nothing in PCRT overrides legal professional privilege. Similarly, nothing in PCRT shall override a member’s professional duties or be interpreted so as to give rise to any conflict under general law, statutory regulation, or professional regulation of solicitors or barristers, and in the event of any conflict general law, statutory regulation or such professional regulation shall prevail. For these purposes a conflict shall be considered to arise at least where such law, statutory or such professional regulation to which members are subject would prevent compliance with what would otherwise be required by PCRT.’
Members who are also solicitors or barristers need to bear in mind that, being subject to more than one professional code, if one code imposes a higher standard of behaviour than another, the requirements of the code imposing the higher standard must be fully adhered to. Section 1.6 is there to protect solicitor and barrister members if there is a risk of conflict between the two requirements, but it does not protect them more widely if they fail to adhere to the higher standard. They should ensure they are familiar with PCRT and the supporting help sheets which give practical advice and guidance in the following areas:
- PCRT Help sheet A: Submission of tax information and Tax filings
- PCRT Help sheet B: Tax Advice
- PCRT Help sheet C: Dealing with errors
- PCRT Help sheet C2: Dealing with errors - members in business *New*
- PCRT Help sheet D: Request for data by HMRC
- PCRT Help sheet E: Members’ Personal Tax Affairs
If you are in any way uncertain of your obligations please standards [at] att.org.uk (get in touch).
Can I furlough staff specifically for periods while they are training?
While an employee is on furlough they are permitted (indeed encouraged) to carry out training in their furloughed hours provided that they do not provide services to or generate revenue for their employer or any connected or linked organisation. Where training occurs at the employer’s request they must ensure that the employee receives pay equal to or greater than the NMW for their training hours. If the furlough pay is not sufficient to cover this, the employer must make up any shortfall at their own cost.
Members are reminded that the purpose of the Coronavirus Job Retention Scheme (CJRS) is to provide support for employees who have been placed on furlough as a result of coronavirus. The scheme is intended to support the continued employment of employees whose employment activities have been adversely affected by coronavirus and members should ensure all claims are in line with this purpose. Accordingly it is not acceptable to use the flexible nature of the CJRS since 1 July to furlough staff purely for training or study periods or the days running up to an exam.
In a similar manner, HMRC have specifically reminded firms that deciding to close over Christmas and then using the furlough scheme to cover wages is not permitted because the closure is due to Christmas, rather than as a result of coronavirus.