Professional Conduct in Relation to Taxation (PRCT)

PRCT : Application to all members

This type of coverage is crucial for ensuring that any liabilities emerging after the cessation of business activities are adequately addressed, particularly in professions where claims can arise long after services have been delivered. By maintaining run-off cover, professionals protect themselves from financial risks associated with past work

What are the standards for tax planning ?

Client specific:

Tax advice must address the specific facts and circumstances of each client, with reasonable assumptions clearly identified. Generic advice carries risks and should highlight the need for further specific advice.

• Members should inform clients of the risks directly attributable to the advice and identify when external advice may be needed.

• Advice should accurately reflect the client's current situation and include a clear statement of any assumptions made, such as UK residency.

Lawful:

Members must always act lawfully and highlight any material uncertainties in the law to their clients. If a member disagrees with a revenue authority’s interpretation, they should:

• Alert clients to differing views and potential challenges

• Outline associated risks and costs if the matter proceeds to dispute resolution.

Disclosure and transparency:

The revenue authority should have complete information. Should:

• Ensure disclosure meets legal requirements

• Advise clients to provide fuller disclosure when appropriate for transparency.

Tax planning arrangements:

Members should not promote schemes that:

• Exploit legislative loopholes against Parliament’s intent

• Use highly artificial or contrived steps for tax benefits

• Create results inconsistent with the law’s purpose.

Professional judgement and documentation:

Exercise sound sound professional judgement and maintain records to support their advice. Documentation should:

• Include the rationale for decisions, uncertainties, and recommended disclosures.

• Serve to protect both the member and client if the advice is challenged.

Help sheet A : materiality

Materiality refers to the importance or significance of information in decision-making. Help Sheet A explains that materiality is about deciding what information is important based on each specific situation.

When calculating profits for a business or profession, you should use Generally Accepted Accounting Principles (GAAP). This approach allows you to ignore small, unimportant adjustments unless the law requires changes.

However, the idea of materiality in GAAP doesn't apply to tax returns, meaning you can't use it when filling out tax forms. For some small businesses, there's an option to use a simpler method called the cash basis, which is automatically used for small property businesses. When using the cash basis, materiality doesn't matter.

Help sheet A: Disclosure

If a client refuses to include the legally required minimum information in their tax filing, members should consult Help Sheet C: Dealing with errors. Generally, it benefits clients to fully disclose information relevant to their tax liability to HMRC, as this can foster a positive relationship based on good faith and trust, potentially reducing the risk of further assessments, interest, and penalties.

In some cases, providing more information than legally necessary might be advisable. When deciding on the extent of disclosure, members should consider factors such as those outlined in 'The Standards for Tax Planning' in the Professional Conduct in Relation to Taxation (PCRT).

There are a few considerations to take when deciding what information needs to be disclosed:

• Whether relying on a valuation

When submitting tax info, consider if a valuation is being used, as this may necessitate additional disclosure to ensure transparency and accuracy.

• Terms of applicable law

Consider “ “ to ensure the tax info submitted is compliant with current regulations and statutes.

• View taken by member and HMRC

Evaluate differing perspectives or interpretations of tax rules between the taxpayer (or their representative) and HMRC to pre-emptively address potential disputes.

• Extent of any doubt regarding correct treatment of an item

Asses the level of uncertainty about the correct tax treatment of an item, as significant doubt may require further clarification or disclosure to HMRC.

• Manner of disclosure

Consider the most effective way to disclose info to HMRC, ensuring that it is clear, comprehensive, and easily understood to avoid misinterpretation.

• Size and gravity of item in question

“ “ should be weighed, as larger or more serious items might necessitate more thorough disclosure to avoid scrutiny.

Advising clients on disclosure

Help Sheet A advises members to ensure that clients disclose adequate information to HMRC to foster a positive relationship and reduce the risk of penalties or further assessments. It highlights that fuller disclosure than strictly necessary might be beneficial, especially when there are uncertainties, such as reliance on valuations or differing interpretations of tax laws. Members should ensure clients are aware of the implications and obtain their consent before proceeding with fuller disclosure.

Furthermore, if there is doubt about the treatment of certain items, members should consider additional disclosure and seek further advice if needed. It's crucial for members to document discussions and decisions thoroughly, as they may need to justify these actions in the future. Ensuring that clients understand their obligations and the potential implications of their decisions is a key part of the advisory process.

Supporting documents

Help Sheet A suggests that while HMRC typically doesn't require supporting documents with tax filings, adding extra explanatory details in the designated 'white space' can help clarify complex situations and reduce the likelihood of future assessments. If the 'white space' isn't enough, taxpayers might include attachments for crucial information that supports the filing. These additional documents should only be used when necessary to provide clarity beyond the standard filing sections.

HMRC published guidance

Help Sheet A indicates that members can usually depend on HMRC's published guidance, but they should remain cautious, as legal rulings may not always align with this guidance. If HMRC changes its stance on previously clear advice, pursuing a Judicial Review might be an option. Therefore, members should ensure their reliance on HMRC guidance is justified and remain vigilant for any potential legal conflicts.

Help sheet A : client approval

Before submitting tax filings, it is essential that clients approve them to confirm that all information is correct and complete, ensuring accuracy and compliance with tax regulations.

Clients should have their attention drawn to any judgemental areas within the filings, so they are aware of any assumptions or estimates that may affect their tax position.

Additionally, retaining evidence of the client's approval is important for maintaining a clear record of consent and can serve as protection for both the advisor and client in case of any future disputes or audits.

Exceptions

In cases where a member approves tax returns in their role as a liquidator, receiver, or administrator, or under a personal appointment as a trustee, executor, attorney, or director, it is important to consider the legal capacity in which they are acting to ensure that they have the authority to make such decisions.

The process by which the client or their representative will review and take responsibility for the tax filings should be clearly outlined, ensuring accountability and transparency.

Additionally, understanding the legal implications for the practice and the signatory involved is crucial to safeguard against potential liabilities and ensure compliance with relevant laws and regulations.

Referrals or second opinions

Members must adhere to the Code of Ethics concerning professional competence, ensuring they possess the necessary skills and knowledge for the services they provide. If a client requests advice on a topic outside the member's expertise, such as IHT planning for someone who typically handles annual tax compliance, the member should refer the client to a specialist.

Support

A member might consider setting up arrangements with another firm or a fellow professional from a recognised body to provide assistance when needed. This would help ensure continuity of service and minimise any disruptions to clients in the unfortunate event that the sole practitioner becomes incapacitated or passes away.

Help sheet A: 3rd party advice considerations

When submitting tax filings on behalf of a client who has received third-party advice, members must carefully evaluate the credibility and reliability of the external advice to ensure that it aligns with legal and ethical standards. Additionally, members should consider the potential impact of the third-party advice on the client's tax position and ensure that all necessary due diligence is conducted to uphold the integrity of the filing process.

• Is the advice current?

• Does it align with their interpretation of the law?

• Do any legal opinions in the advice relate specifically to the advice?

• What are the qualifications and professional standing of the third party?

• Does the tax planning provided by the third party appear to involve contrived avoidance?

  
  

Help sheet B : tax advice considerations

• Ensure advice falls within scope of engagement letter

• Observe the 5 standards

• Tailor advice to client

• Understand client intentions to ensure advice aligns with their goals and does not encourage unethical behaviour

• Address implementation issues involving practical aspects and potential challenges in executing the tax advice provided.

Help sheet B : tax advice associated risks

A fundamental consideration in providing tax advice is assessing the risk involved, ensuring that both the client and advisor are aware of potential legal, financial, and ethical implications.

• Reputational risk

• Implications for client of prolonged dispute with HMRC (increased costs, uncertainty, reputational damage etc)

• Strength of legal interpretation relied upon

• Impact for client on being able to tender for government contracts (tax disputes can affect client ability to tender for govt contracts).

Help sheet B: additional considerations

• Advice should be relevant - adheres to existing guidelines.

• Client should fully comprehend the tax planning proposals for informed decision-making

• Comprehensive documentation recording all advice, decisions made and actions taken

Help sheet C: what is an error?

In the PCRT guidance, the term "error" includes any inaccuracies, omissions, or misstatements within a client's tax affairs, which can originate from the advisor, the client, or HMRC.

Such errors can result in the client paying either too much or too little tax. It is essential for tax advisors to promptly identify these issues, advise the client on how to rectify them, and provide guidance on managing any necessary repayments or adjustments within the legal time limits, ensuring compliance with tax obligations and maintaining professional standards.

Help sheet C: what to do if an error?

1 Establish the facts. See if error exists, or if unclear if should take further action.

2 Assess if error is trivial (e.g. does not impact overall tax liability). If not e.g. led to considerable underpayment of tax, need disclosure .

3 Disclosing. First request authorisation to disclose; if approved, advisor discloses error to HMRC, if not approved, advise client of consequences of not disclosing; cease to act if client refuses to disclose as is against PCRT.

Help sheet C: client disclosure

When advising HMRC of errors, it is crucial to ensure that you have the client's consent to disclose any discrepancies. Clients should be reminded of their responsibilities, including the potential interest and penalty implications if they fail to disclose errors to HMRC.

In situations where HMRC has overpaid a member, the member can return the excess amount without needing the client's authority. However, it is important for the member to inform the client of the actions taken to maintain transparency and trust.

Steps:

• Ask client for authority to disclose

When disclosing an error to HMRC, it is essential to obtain the client's authority, ensuring they are fully informed of the nature and implications of the error.

While providing advice on the potential consequences, such as interest or penalties, the client should be reminded that they are not obligated to act on the advice. Explicit consent must be obtained before proceeding with the disclosure to maintain transparency and trust.

• Advise client of consequences of failing to disclose

When advising a client about the consequences of failing to disclose an error to HMRC, it is important to highlight the potential repercussions, such as interest charges, penalties, and the risk of further scrutiny by HMRC.

Conversely, disclosing the error in a timely manner can demonstrate transparency and good faith, potentially reducing penalties and fostering a more cooperative relationship with HMRC. Timeliness in addressing the error is crucial to mitigating negative outcomes and ensuring the client is making an informed decision.

• Advising the client in writing of the consequences of failure to disclose

Members must inform the client in writing about the potential consequences if they remain unwilling to disclose an identified error to HMRC. The advisor should clearly explain the facts of the situation and try to determine if the client is refusing to disclose. This communication should ensure the client understands the possible repercussions of failing to correct the error; including penalties or legal action.

Actions where the client refuses to disclose

A member should cease to act if a client remains unwilling to disclose an error to HMRC, as this refusal could implicate the member in unethical or illegal activities.

If relevant, a member should inform HMRC of their withdrawal to formally dissociate from the client's non-compliance. Additionally, they should consider withdrawing any reports they have signed to ensure they are not linked to potential inaccuracies or misrepresentations.

A member should consider whether a money laundering report must be filed if a client remains unwilling to disclose an error to HMRC.

A member should consider carefully their response to any professional enquiry letter, also known as a professional clearance letter. This involves providing accurate and relevant information while addressing the situation regarding the client's unwillingness to disclose an error to HMRC.

Ceasing to act

When ceasing to act due to a client's unwillingness to disclose an error to HMRC, the member should first inform the client of their decision and the reasons behind it. They should consider filing a money laundering report if necessary and may choose to still assist the client on non-tax matters. Failing to cease acting after being aware of the issue can lead to disciplinary action against the member.

If the member had been representing the client in dealings with HMRC or was formally appointed as a tax agent, they should inform HMRC that they are no longer acting for the client. Due to the obligation to maintain client confidentiality, the member should not disclose the reasons for ceasing to act to HMRC.

Help sheet C : other related matters

• Self-assessment

If an error affects a self-assessment return, it is important to determine whether the return is still within the timeframe allowed for amendments. If the timeframe for making amendments has not yet expired, the error can be corrected through an amendment.

However, if the timeframe has passed, it will be necessary to notify HMRC separately about the error to ensure it is addressed properly.

• Decisions of tribunals or courts

It's possible that a Tribunal or Court decision, occurring perhaps years after a client has submitted a self-assessment return, might question the basis on which the return was originally filed. Members are not obligated to continuously review all filed returns against every new tax case decision over the years to catch this rare event.

However, if a member becomes aware of such a situation, they should assess whether the interpretation from the Court or Tribunal case is relevant to the client's return. If uncertain, the member might consider seeking specialist advice. Additionally, they should check if the case is being appealed and may decide to wait for the appeal's outcome. Once a final decision is reached and it applies to the client's return(s), the member should consult the relevant guidance to determine the necessary actions.

• What corrective action is required?

When a Tribunal or Court decision impacts submitted returns, it's crucial to assess whether the basis for the original submission was clearly stated at the time. It's also important to consider if the returns were submitted in line with prevailing practice and whether there was continuity in how similar issues were treated in previous returns.

If these aspects raise concerns or uncertainties, seeking specialist advice may be necessary to determine the appropriate actions moving forward.

Help sheet C2: members in business - steps if a possible error

Types of errors can include additional amounts to HMRC or inaccuracies in the SAO’s certificate on tax accounting arrangements.

1 Establish the facts (see if error occurred).

2 If error found - assess significance. Trivial = no further action needs to be taken.

Significant :

3 Determine if have authority to address the matter either internally or externally (HMRC). If yes - disclose to HMRC.

If no :

Escalate issue internally and advising on risks associated with non-disclosure.

When received authorisation - disclose error to HMRC.

If not received authorisation - consult org’s internal whistleblowing procedures if available, or seek legal advice.

Evaluate if need to report to Money Laundering Officers.

Help sheet 2C : business procedures for disclosing errors

Members in business must obtain authorisation before disclosing any errors to HMRC or external bodies, such as advisors, to ensure compliance with company policies and confidentiality agreements. They should follow their organisation’s established procedures, which may include consulting with the Senior Accounting Officer or legal department, to evaluate the error and determine the appropriate course of action.

A series of steps, often outlined in company guidelines, can be taken to attain the necessary authorisation, ensuring that disclosures are handled correctly and responsibly:

• The member should seek internal approval to inform HMRC about the error. They should inform colleagues about the importance of making a prompt disclosure and highlight the business’s obligations under relevant tax laws, including potential interest, surcharges, penalties and the rules for correcting innocent errors.

  If authority to disclose isn’t given, members should follow the next step.

• If colleagues are reluctant to approve the disclosure of an error to HMRC, the member should bring the issue to the attention of senior staff within the company. They should also consider whether to seek expert advice or a second opinion.

  It's important for the member to communicate the risks of not disclosing, the advantages of voluntary disclosure in reducing penalties, and HMRC's authority to collect information, while also informing colleagues that they will formally document their advice on the need for disclosure.

  If authority to disclose isn’t given, members should follow the final step.

• If senior colleagues are still unwilling to fully disclose to HMRC, the member should act to protect their own integrity by ensuring their conduct and advice are beyond reproach. They must provide written advice to colleagues, detailing the facts as they understand them, reiterating the recommendation to disclose, and outlining the consequences of not doing so.

  Should colleagues continue to delay after receiving this written advice, the member must determine when this delay effectively becomes a refusal to disclose.

Actions where the business refuses to authorise disclosure

If colleagues remain unwilling to disclose, consult the business's whistleblowing policy, if one is available, to understand the appropriate channels for reporting.

This policy can provide guidance on how to escalate the issue internally while protecting the whistleblower's rights.

Consider any money laundering reporting issues that may arise from the non-disclosure, as failing to report could have legal implications.

It is crucial to ensure compliance with all relevant regulations to avoid potential penalties or legal action.

Seeking legal advice is recommended to fully understand the potential risks and liabilities associated with the situation.

Legal counsel can provide clarity on the best course of action and support informed decision-making.

In extreme cases, consider resigning if the ethical implications of remaining in the role are untenable.

Resignation should be viewed as a last resort, taken when all other avenues for resolution have been exhausted.

Help sheet C2: other matters

Corporation tax or other returns

If an error affects the corporation tax return, the first step is to determine whether it falls within the allowable time frame for making amendments. If it is still within this period, amendments can be made directly. If not, a separate notification to the relevant authorities may be necessary.

Decisions of tribunals or other courts

When a subsequent decision in a Tribunal or Court affects submitted returns, there is no duty to monitor all returns and tax cases for many years after filing. It is advisable to discuss the implications with colleagues or the business's professional advisers. If needed, seeking specialist advice can help address any complex issues that arise.

Help sheet D : requests for data

In the context of Help Sheet D the term data is used to describe documents in any form be it electronic or physical copies that the HMRC may request.

Different approaches are needed depending on whether the request is addressed to the client or the member. Even if a member is no longer representing a client, they must maintain confidentiality and comply with formal requests when legally obligated. Informal requests should be redirected to the client or their new representative.

Members should comply with formal data requests without hindrance, adopting a constructive approach to facilitate quick resolution and minimise costs. It's important for members to understand HMRC's powers and consult specialists if needed, as devolved tax authorities may have different regulations.

Help sheet D : informal requests

The HMRC can make informal requests to both clients and members for data, which are casual inquiries not backed by legal authority. These requests necessitate different handling compared to formal requests, as they rely on voluntary compliance.

Informal request to clients:

When informal requests for information are directed to a client by HMRC, the member may want to advise the client on the advantages of complying with the request. Providing such guidance can help the client understand the potential benefits and implications of cooperation.

Additionally, it is important to recognise that an informal request may be a precursor to a formal request. Members should prepare clients for this possibility, ensuring they are aware of what a formal request might entail and how best to respond.

Informal request to members:

When members receive informal requests for information from HMRC, disclosure can only occur with the client's permission. Often, routine and relevant disclosures may have already been authorised, but if there is any uncertainty, the client should verify the accuracy and nature of the information being disclosed.

It is advisable to have verbal requests from HMRC confirmed in writing to ensure clarity and accountability. Members should advise clients on whether it is in their best interests to comply with the disclosure request, providing expert guidance on the potential implications.

Help sheet D : formal requests

The HMRC can issue formal requests to clients and members for data, which are backed by legal authority and require compliance. These requests must be handled according to legal obligations, ensuring the member adheres to the requirements specified.

Formal requests to clients:

When formal requests for information are addressed to a client by HMRC, it may be necessary to seek specialist advice to ensure the request is legally effective and valid. This expert input can help the client understand their obligations and the legitimacy of the request.

In addition to confirming the validity of the request, the member should inform the client about any relevant rights of appeal that might be appropriate. It's also crucial to communicate the consequences of failing to comply with the request, ensuring the client is fully aware of potential legal or financial repercussions.

Formal requests to members:

When formal requests for information are addressed to a member by HMRC, these may override the usual duty of confidentiality. However, members should ensure they do not provide any documents beyond the scope of the request, as doing so could breach client confidentiality.

Members must comply with lawful information requests, but if the request does not legally prevent them from discussing it with the client, they should inform the client and keep them updated on the progress. If HMRC seeks to enforce the legal removal of documentation or gain entry to inspect documents at business premises, it is advisable to seek specialist advice.

Help sheet D : Schedule 36 of the Finance Act 2008

Schedule 36 of the Finance Act 2008 outlines HMRC's powers in requesting data from taxpayers. It allows HMRC to request information necessary to assess a taxpayer’s position.

Although these requests are legally binding, HMRC may offer flexibility by negotiating the deadlines and scope of the required information.

This legislation also includes the power for HMRC to inspect and remove data. However, it's important to note that HMRC does not have the authority for forced entry into premises, so any inspections must be conducted within legal boundaries.

If you receive a request under Schedule 36, it might be wise to consider whether specialist assistance is required to ensure you meet all obligations and protect your interests.

For third-party notices, Schedule 36 requires either Tribunal approval or the consent of the taxpayer, adding an additional layer of oversight and protection.

Help sheet D : privileged data

Privileged data refers to information protected from disclosure, preserving confidentiality between a client and their legal advisor. This includes legal advice privilege, covering communications for obtaining legal advice, and litigation privilege, concerning documents created for litigation purposes.

• Legal advice privilege

Protects communications between a client and their lawyer, ensuring that advice sought and given remains confidential, even when HMRC requests information. However, it's important to note that advice from a tax advisor, who is not a qualified lawyer, typically does not fall under this privilege and may not be protected from disclosure to HMRC.

• Litigation privilege

Litigation privilege safeguards communications and documents created for the purpose of pending or ongoing litigation, maintaining their confidentiality against requests from HMRC. However, this privilege does not apply to non-adversarial proceedings, meaning documents prepared for such matters may not be protected from disclosure.

• Quasi-privilege

Quasi-privilege, as outlined in Schedule 36 of the Finance Act 2008, refers to a limited protection that applies to certain communications between a taxpayer and their advisers. While not as robust as legal advice or litigation privilege, quasi-privilege acknowledges that some tax advice communications may warrant a degree of confidentiality, though this protection is not absolute and may still be subject to disclosure under specific circumstances outlined by HMRC.

Help sheet E: Members’ personal tax affairs

• Application

The PCRT sets expectations not only for members in their professional business conduct but also in how they manage their own personal tax affairs, ensuring integrity and professionalism in both areas.

All members should not bring themselves or their professional body into disrepute.

• Tax returns and tax compliance

It is essential for members to keep their tax affairs up to date to ensure compliance with legal obligations and avoid any potential penalties or interest charges from late filings or payments. Staying current with tax responsibilities also reflects a commitment to professionalism and integrity, which is vital for maintaining trust and credibility in both personal and professional contexts.

• Disputes with HMRC and advocacy

If a member encounters a dispute with HMRC regarding their own tax position, it is advisable to consider engaging a professional agent to represent them. This ensures that the member benefits from expert guidance and support, potentially leading to a more favourable resolution of the dispute.

• Tax planning

Members should carefully evaluate the appropriateness of any tax arrangements they personally enter into, ensuring they align with legal requirements and ethical standards. This consideration helps to maintain their professional reputation and avoid potential issues with tax authorities.