1
Q
What are the fundamental ethical principles?
A
Integrity Objectivity Professional competence and due care Confidentiality Professional behaviour
2
Q
Define integrity
A
Professional acc must be
- straightforward
- honest
in all professional and business relationships
3
Q
Define objectivity
A
Not allow bias, conflict of interest or undue influence override prof/bus judgements
4
Q
Define prof competence and due care
A
Duty to
- Maintain prof knowledge and skill at level required to ensure clients receive competent prof service based on current practice
- Act diligently in accordance with technical and prof standards
5
Q
Define confidentiality
A
- Respect the confidentiality of info acquired as a result of professional bus relationships
- Refrain from disclosing such info without proper and specific authority unless legal duty to disclose
6
Q
Define professional behaviour
A
Must comply with all laws and regs
Avoid any action that discredits the profession
7
Q
What are the threats that may threaten the fundamental principles?
A
Self interest threats Self-review threats Advocacy threats Familiarity threats Intimidation threats
8
Q
Define a self interest threats
A
May occur as result of financial or other interest of a prof acc/immediate/close family member
9
Q
Define a self review threat
A
When previous judgement needs to be re-evaluated by the prof acc responsible for the judgement
10
Q
Define an advocacy threat
A
When a prof acc promotes a position/opinion to the point that subsequent objectivity may be compromised
11
Q
Define intimidation threats
A
When prof acc may be deterred from acting objectively by threats, actual or perceived
12
Q
What are the safeguards created by the profession/legislation or regulation to mitigate threats
A
- Educational, training and experience requirements for entry into the prof
- Continuing Professional development
- Corporate governance regulations
- Professional standards
- Professional/ regulatory monitoring and disciplinary procedures
- External review by legally empowered third party
13
Q
What are the safeguards in the work environment to mitigate threats to the fundamental principles?
A
- Effective, well publicised complaints system operated by employing org to allow e’res to draw attention to unprofessional/ unethical behaviour
- An explicit stated duty to report breaches of ethical requirements
14
Q
What does PCRT stand for?
A
Professional Conduct in Relation to Taxation
15
Q
What is the purpose of the PCRT?
A
Produced by various acc/tax bodies
Includes practical advice about ethical and legal issues arising in tax work and considers relationship with both clients and HMRC
16
Q
What are the standards included in PCRT for tax planning?
A
Client specific Lawful Disclosure and transparency Tax planning arrangements Professional judgement and appropriate documentation
17
Q
Describe the following PCRT principle
Client specific
A
Must be specific to the particular clients facts and circumstances
Clients must be alerted to wider risks and implications of any courses of action
18
Q
Describe the following PCRT principle
Lawful
A
Members must act lawfully and with integrity and expect the same from their clients
- Tax planning should be based on a realistic assessment of all facts, and on a credible view of the law
- Draw client attention to material legal uncertainties (e.g. if HMRC is known to view the law diff)
- Members should consider taking further advice appropriate to risks/circ of the particular case (e.g. where litigation is likely)
19
Q
Describe the following PCRT principle
Professional judgement and appropriate documentation
A
Applying these requirements to particular client advisory situations applying these requires members to exercise professional judgement on a number of matters
Members keep notes on timely basis about rationale for judgements exercised in seeking to adhere to these requirements
20
Q
Who can conflicts of interest arise between?
A
Firm and client
Two clients managed by the same firm
21
Q
What must members do to identify threats of conflict of interest?
A
Members must take reasonable steps to identify any conflicts of interest (therefore threats to compliance with fundamental principles)
22
Q
What steps should be taken if a conflict of interest is identified?
A
- Notify relevant parties of ay actual/ potential conflicts of interest
- Obtain consent of relevant parties to act
- If consent is refused, cease acting for one party involved in the conflict
23
Q
If consent is given for an acc to continue to act when there is a conflict of interest, what steps should be taken?
A
- Use separate engagement teams
- Impose procedures to prevent access to info
- Issue guidelines to team members re security/ confidentiality
- Use confidentiality agreements for e’ees/ partners
- Regularly review safeguards: should be done by senior not involved with engagements
- If the conflict can’t be resolved, consider not accepting /resigning from one engagement
24
Q
What factors should be considered when initiating an ethical conflict resolutions process?
A
- Relevant facts
- Ethical issues involved
- Fundamental principles related to matter in question
- Parties involved
- Established internal procedures
- Alternative courses of action
25
What must be done if an ethical conflict remains unresolved?
- Seek advice within own firm and document advice given (if conflict is within org, consider consulting those charged with governance)
- Seek legal advice/ advice from prof body/advisers
- Consider withdrawing from eng/ conflicting situation
26
What must be done if an ethical conflict remains unresolved?
- Seek advice within own firm and document advice given (if conflict is within org, consider consulting those charged with governance)
- Seek legal advice/ advice from prof body/advisers
- Consider withdrawing from eng/ conflicting situation
27
When may an acc disclose confidential info
- Permitted by law and is authorised by client/e'er
- Disclosure if required by law
Examples
-> Production of documents or other provision of evidence in the course of legal proceedings
-> Disclosure to the appropriate public authorities of infringements of the law e.g. under AML
- Prof duty/right to disclose, when not prohibited by law to
- > Comply with quality review of a member body/ prof body
- > Respond to inquiry/ inv by member body/ regulatory proceedings
- > comply with technical standards and ethics requirements
28
Describe how any errors found must be dealt with
- Acc are advised to include in their letters of eng authority to advise HMRC of errors, otherwise client consent is required
- If consent is withheld either
- -> Seeking legal advice
- -> Ceasing to act for the client
29
What must be done if an error is found that leads to the overpayment of tax?
- Client should be advised ASAP as to the existence of the error and the possibility of a repayment claim
30
What must be done if an error is found that leads to the underpayment of tax?
Tax advisor should be aware of the possible implications under the ML legislation
If relevant, a disclosure may be appropriate without the need to gain client consent
31
Describe new client procedures
- When considering the client consider:
- - Whether acceptance creates any threats to compliance with fundamental principles?
- - Is the firm competent to provide the services requested
Eng letters should
- Make it clear whether they are agent for client or as principal
- Cover the scope of client's and agent's respective responsibilities
- Discuss responsibility for tax returns
Professional indemnity insurance
- Adequate cover should be in place (min £1.5m unless firms gross fee income is under £600k, then its 2.5x gross fee income with min of £100k)
- Continue to hold cover for at least 2 years after ceasing (preferably 6)
32
Describe what should be included in engagement letters
- Should make it clear in what capacity the accountant is acting, as an agent for the client or as a principal
- Should cover the scope of the client's and agent's respective responsibilities
33
Describe the capacity as an agent
- Acting on client's behalf: client retains responsibility for accuracy, so this is a low risk activity
Example: submitting SA
Acc owes a duty of confidentiality to client (no disclosure unless authorised by taxpayer)
Duty only overridden if:
- Client suspected of ML
- HMRC exercises stat powers to obtain information
- Court order forces acc to make disclosure
34
Describe the capacity as a principle
Provision of tax advice
| May be liable to the taxpayer if advice is incorrect or inappropriate so this is considered to be a high risk activity
35
Describe the various responsibilities of the parties involved in tax returns
- Client retains responsibility for the accuracy of a tax return. Acc should draw the client's attention to this
- Acc should obtain written evidence of the client's approval of the return
- At times, acc may recommend fuller disclosure in a tax return than is strictly necessary, e.g. when significantly tax planning is involved
- Client made aware of potential issues and implications of actions. Fller disclosure shouldn't be made unless the client gives her permission
36
What PII should be given?
Adequate cover should be in place (minimum of £1.5m unless the firm's pros fee is under £600k- then it's 2.5x gross fee income with minimum of £100k
Must continue to hold cover for at least 2 years after ceasing to practice, preferably 6 years
37
What are the new rules surrounding data protection
- Anyone who handles personal data has obligation to protect data under GDPR and to adhere to DP Act 2018
Compliance with GDPR is overseen by ICO
Any person/bus processing personal data must register with ICO
Most businesses must appoint a data protection officer
ICO must be informed within 72hrs of breach that affects the rights and freedom of individuals
38
What can non-compliance of data protection lead to?
- Criminal conviction when a criminal offence under Data Protection Act has been committed
- A fine of up to 20m euros or 4% of firms global turnover
39
What steps must be taken to prevent unauthorised access to client records?
- Passwords to access data being kept safe and computers kept physically secure
- Such passwords being changed regularly
- Any unusual activity on clients online HMRC records being reported immediately
- Suspicious emails appearing to be from HMRC being forwarded to HMRC's phishing team
40
Describe the accountability of Senior Accounting Officers (SAO)?
- Large companies (turnover over £200m and/or bal sheet over £2b) must appoint a SAO to certify that acc systems are adequate for tax reporting purposes
SAO is required to
-- Certify annually the adequacy of the acc systems
-- Specify the nature of any inadequacies
Penalties apply for non-compliance or the provision of erroneous info. In each case, the penalty is £5k and is generally the personal liability of the SAO
41
What are the 3 main criminal offences of money laundering?
- Laundering itself (14 years)
- Failure to report. Under POCA it is an offence to not report reasonable suspicion of ML (5 years)
- Tipping off (2 years)
42
What are the defences if an action for failure to report is brought against an indiv
- Didn't know/ suspect ML and hadn't been provided with appropriate training by e'er
- They are exempt as their knowledge/ suspicion came about under privileged circumstances (e.g. providing info for use in actual/ pending litigation)
- Reasonable excuse for not making repot
- Known/suspected ML in country outside UK where it isn't an offence
43
What are the money laundering procedures that must be maintained?
- Register with appropriate supervisory authority. ICAEW is one of approved supervisory authority. Any acc firms not regulated by approved bodies will be supervise by HMRC
- Appointment of MLRO and implementation of internal reporting procedures
- Prepare and maintain a whole firm risk assessment
- Train staff to
0 make aware of relevant legislation
0 Know how to recognise and deal with potential M
0 how to report suspicions to MLRO
0 how to verify client identity
- Establish appropriate internal procedures for risk assessment to deter and prevent ML, make india's aware of procedures
- Customer due diligence to be carried out on any new client and monitoring of existing clients to ensure client is known and establish areas of risk
- Verification of ID of new clients and maintain evidence of ID and records of any transactions
- Reporting suspicions of ML to NCA with SAR (don't tip off client)
44
Define tax planning
Gvmt offers various tax saving schemes to include investment (e.g. ISA acc)
PCRT advises that tax planning is legal and taxpayers and entitled to enter into transactions that reduce tax
HMRC may challenge interpretations of law but only the courts can determine whether a piece of tax planning is legal/not
45
Define tax avoidance
```
Organising tax affairs to minimise a tax bill
Legal
Schemes must be disclosed to HMRC
Examples
- Efficient use of losses
- Investment in ISA
- Use of spouse exemption for IHT
```
HMRC states tax payers should avoid schemes that are aggressive/abusive
Signposts of abusive
- Tax benefits out of proportion to any real economic activity
- Artificial or contrived arrangements
- Money going around in a circle back to where it started
46
Give some examples of signposts that indicate aggressive/ abusive tax avoidance
- Tax benefits out of proportion to any real economic activity
- Artificial or contrived arrangements
- Money going around in a circle back to where it started
47
Define tax evasion
Illegal
Involves misleading HMRC, including
- Suppressing info HMRC is entitled to (not notifying of liability to tax, understating income/gains, omitting relevant facts)
- providing HMRC with deliberately false info (deducting exp incurred or claiming cap allowanced on plant not purchased)
48
What are the requirements of large businesses for tax strategies?
- Large companies must publish on the internet their strategies in relation to UK taxation
- Failure to do so leads to an initial penalty of £7.5k + further for continued non-compliance
- Large if £200m turnover and/or bal sheet over £2bn
- A special measures incentive exits to monitor large businesses which use aggressive tax planning or reuse to eng with HMRC in collaborative way
49
What are the penalties for off-shore tax evasion?
- Enablers of offshore tax evasion will be issued with a penalty.
- Penalty is the higher of
> 100% of potential lost revenue
> £3k
- HMRC have power to publish info about the enabler if
> potential lost revenue exceeds £25k
> there have been at least 5 penalties in a five year period
50
Describe the Criminal Finances Act 2017
- Act establishes criminal liability for relevant bodies who fail to prevent the facilitation of tax evasion
- Applies to UK and overseas companies and partnerships (but NOT ST)
- For an action to be brought here 3 stages must be proved
> Criminal evasion of tax
> Facilitation of evasion by associated person
> Failure of relevant body to prevent facilitation
- Intention or knowledge isn't required
- Statutory defence where at the time of the offence the relevant body has reasonable prevention procedures in place to prevent tax evasion facilitation offences or where it is unreasonable to expect such procedures
51
Define an associated person
Can be an individual, corporate entity or an e'ee of a corporate person, carrying out services on behalf of the 'relevant body'
52
What is joint and several liability?
A person will be jointly and severally liable for amounts payable to HMRC by a company in certain circumstances involving actual/ potential insolvency, where that person is a director, shadow director or connected to the company
53
What are the 3 scenarios in which HMRC can issue a 'joint liability notice' to an individual
1. Insolvency procedures
2. Phoenix companies
3. Penalties for tax avoidance/evasion
54
Describe the scenario known as 'insolvency procedures' in which HMRC can issue a 'joint liability notice' to an individual
The company is subject to insolvency, or there is a serious risk they will be and
- Company has engaged in tax avoidance/evasion
- Person who is responsible for the company's conduct enabled it, facilitated it or benefitted from it
- There is likely to be a tax liability arising as a result of the avoidance/ evasion
- There is a serious possibility that some or all of the above liability won't be paid
55
Describe the scenario known as 'phoenix companies' in which HMRC can issue a 'joint liability notice' to an individual
Notices will also be given to indivs who repeatedly accumulate unpaid tax debts by running a series of insolvent companies which transfer their trade but not debts from one entity to the next
3 conditions must be met for notice to be issued in this scenario
1. 2+ companies to which the person has a connection have become insolvent in 5 year period
2. The person is connected to another company that carries on the business of the insolvent companies during that 5 year period
3. At least 1 of the old companies became insolvent with a liability to HMRC
56
Describe the scenario known as 'penalties for tax avoidance/evasion' in which HMRC can issue a 'joint liability notice' to an individual
Those who try to avoid penalties for facilitation tax avoidance and evasion by going insolvent
Conditions
- A relevant facilitation penalty has been charged or Tribunal proceedings to charge one have commenced
- The company is subject to an insolvency provision, or there is a serious risk it will be
- There is a serious possibility that some or all of the penalty won't be paid
57
What is the tax gap?
Difference between the total amount of taxes owed to the gvmt and the actual amount received by the gvmt
58
What is data analytics?
The process of examining data sets to draw conclusions about the info contained e.g. income is understated on a TR
59
Give some examples of how are data sets used by HMRC to reduce the tax gap? and why is this beneficial?
Real Time Info (RTI) for PAYE has given HMRC more accurate info about large number of tax payers e.g. current home, date, addresses etc
Makes it easier for HMRC to find tax payers who have underpaid their income tax
MTD will also lead to further data sets being made available from different sources
60
What are the different roles of a tax adviser outlined by PCRT?
- Advising on a planning arrangement
- Introducing another advisers planning arrangement
- Providing a second opinion
- Compliance services
61
What must a tax adviser consider when fulfilling their role as ' adviser on a planning arrangement'?
- Adviser should advise on the risks and implications of any planning scheme before giving advice
- They should consider the Promoters of Tax Avoidance Scheme (POTAS) rules
62
What must a tax adviser consider when fulfilling their role as introducing another adviser's planning arrangement
- If paid a commission to intro another adviser's scheme this should be disclosed to the client and accounted for in line with the Code of Ethics
- Acc should determine whether this should be subject to a monitoring notice under POTAS. If it is subject to notice, it isn't usually appropriate to intro it to the client
- Acc should appraise the scheme and consider its effectiveness and risks
63
What must a tax adviser consider when fulfilling their role as providing a second opinion?
- If asked to provide a second opinion on 3rd parties planning arrangements, the acc shouldn't accept a commission to do so as it could affect their objectivity
- Acc should only give the opinion if they have sufficient expertise to do so, or if they seek help from someone who has
- Acc should consider whether the source of the arrangement is subject to a monitoring notice under POTAS
64
What must a tax adviser consider when fulfilling their role as compliance services
- If the client has received advice elsewhere on planning arrangements which the adviser has to enter on TR, this is classed as compliance services
- If doing so, the acc isn't responsible for advising on the implications of the arrangements, but they shouldn't include any arrangements which they do not believe are sustainable
65
What is the role of the general anti-abuse rule (GAAR)?
Designed to counter tax advantages sought from complex planning schemes or deliberately contrived arrangements
66
What does GAAR apply to?
```
Income tax
Corporation tax
CGT
IHT
ATED
NICs
```
67
What does GAAR stand for?
general anti-abuse rule
68
When does general anti-abuse rule apply?
When one of the main purposes for entering into a transaction was obtaining a tax adv and arrangements are abusive
e.g. profit . income/gain less than economic one, or deduction/losses exceed economic cost
69
What can be done when GAAR applies?
Just and reasonable adjustments can be made to counter the tax advantages obtained
70
What is the Ramsay doctrine?
Planning schemes can be attacked under Ramsay doctrine whereby a purposive construction to the statutory provisions may be applied and transactions, or elements of transactions, with no commercial purpose or effect may be ignored
Ramsay doctrine states that when there is a tax avoidance scheme using a series of step the effect of the whole series should be looked at in their entirely rather than each indiv step on its own
71
What is the GAAR advisory panel used for?
If HMRC wants to challenge an arrangement under GAAR they refer it to the Indep Advisory Panel
Panel then determines whether the arrangements are a reasonable course of action. If not, promoter of scheme will meet a threshold condition for POTAS regime. If HMRC feel this is significant, they must issue a conduct notice to the promoter
HMRC can issue a counteraction notice under GAAR with regard to the transaction. if they do, they may also issue an accelerated payment notice. This may mean the taxpayer has to pay the disputed tax in adv
If arrangement is successfully challenged under GAAR it is an occasion of non-compliance for Gvmt Procurement Policy. This may affect the ability of the taxpayer to bid for certain Gov contracts
72
What impact does GAAR have on tax planning?
Where GAAR applies, clients should be advised that tax planning will be ineffective
73
What accounting practices should be put in place to deal with the GAAR?
- training
- Protocols to ensure quality and consistency of treatment
- Raising awareness with clients
- Using a caveat language for advice on GAAR
- Letters for returns may refer to GAAR
- Ensuring existing knowledge materials refer to the GAAR where appropriate
- Reviewing any existing planning
- Ongoing monitoring of decisions of GAAR panel
74
What is the penalty for the GAAR and when does it occur?
Penalty of 60% of the counteracted tax applies when
- A return or claim was submitted to HMRC
- On the basis of a tax adv arising from arrangements
- All or part of the tax adv is counteracted by the GAAR
- The arrangements were entered into on or after Royal Assent to FA2016
75
What does BEPS stand for?
Base Erosion and profit shifting plan
76
What is the OECD?
Inter-governmental organised of 37 member countries which aim to stimulate economic development and world trade
Organised for Economic co-operation and development
77
What have the OECD been working on?
Released its final report in 2015 with 15 focus areas from th action plan
78
Give some examples of some of the BEPS actions that have already been covered by UK tax legislation for a number of years
-CFCs
- Transfer pricing
- Diverted profits Tax (DPT)
- Changes to the patent box rules
- Hybrid mismatch arrangements
Note: further amendments are likely in the future as we have seen by intro of 'Digital services tax' under FA2020
79
What does DOTAS stand for?
Disclosure of Tax Avoidance Schemes
80
What does DOTAS do?
Gives HMRC early warning of aggressive tax planning schemes
81
How does DOTAS work?
- A person devises a tax avoidance scheme and sells that scheme to a client
- The scheme promoter must disclose full details of scheme to HMRC within 5 days of making it available (sometimes longer)
- HMRC provides promoter with scheme ref number (SRN)
- Promoter passes SRN to each client who uses it. Must be done quarterly and client must provide NI/UTR for inclusion on quarterly report
- Cloient must include SRN on their TR for period it is used
82
What is DASVOIT?
Provides disclosure of tax avoidance schemes for VAT and other indirect taxes
Note: also applies to stamp duty land tax schemes but different hallmarks apply
83
When must a tax arrangements be disclosed?
Where
- It will/ might be expected to enable anyone to obtain tax advantage
- That tax adv is the main benefit of the arrangement
0 It is a tax arrangement that falls within 1 of specified descriptions or 'hallmarks'
84
What are the hallmarks that HMRC deem to mean it requires disclosure
- Confidentiality (where promoter would want to keep it confidential from other promoters/ HMRC)
- Premium fee (fee charged spends largely on the success of the scheme)
- Standardisation (product being sold can be adapted to the client without significant modification)
85
What are the additional hallmarks for DOTAS?
- Losses (the scheme involves manufacturing trading losses for wealthy individuals which can be offset against other tax liabilities)
- A leasing arrangement is involved with a cost of at least £10m for a period of at least 2 years
86
What are the additional hallmarks for DASVOIT
- Retail supplies
- Offshore supplies (x2)
- Disapplication of the option to tax
87
Describe the DASVOIT hallmark : retail supplies
splitting and value shifting- scheme involves arrangements to split a supply to a retail customer to benefit from different VAT treatment for the diff elements
88
Describe the following hallmark: Confidentiality
where promoter would want to keep it confidential from other promoters/ HMRC
89
Describe the following hallmark: Premium fee
fee charged spends largely on the success of the scheme
90
Describe the following hallmark: Standardisation
product being sold can be adapted to the client without significant modification
91
Describe the following hallmark of DOTAS: Losses
the scheme involves manufacturing trading losses for wealthy individuals which can be offset against other tax liabilities
92
Describe the DASVOIT hallmark : Offshore supplies
- Insurance and finance: ins and fin supplies involving offshore loops that would be exempt if made directly from UK to EU based customer (detailed question involving EU issues won't be examined)
- Relevant business person; arrangements where supplies of services are routed offshore so that a UK customer doesn't suffer irrecoverable VAT
93
Describe the DASVOIT hallmark: disapplication of the option to tax
- Arrangements which lead to the premature ending of the option to tax
94
Define a promoter
Subject to certain exemptions, a person is a promoter if in the course of business which involves the provision to other persons of services relating to taxation
- To any extent responsible for the design of the proposed arrangement
- Makes a firm approach to another person with a view of making the proposal available for implementation
- Makes the notifiable person available for implementation by other persons
95
What are the information powers of HMRC re tax schemes?
- Requires an introducer to identify the person who provided them with info about the scheme and any person with whom they have made any marketing contact in relation to the scheme
- Enquire why a promoter hasn't disclosed a scheme
- Resolve disputes and if necessary, enforce disclosure
- Request more info if disclosure incomplete
- Require promoter to provide info to identify a client if HMRC suspects that reported parties aren't the only parties to the scheme
- Request further info about notifiable proposals to be provided within 10 days
96
What are the penalties for failure to disclose tax avoidance schemes?
- Failure to comply with a disclosure requirement (£600 max per days and incr to £5k per day where disclosure notice has been issued but not complied with within 10 days)
- Penalties under DASVOIT include an initial penalty of £600/day but a higher penalty of up to £1mcan be charged in some circs
- Failure to provide info (initial penalty £5k then up to £600/day)
- User penalties: scheme user fails to report a SRN starting from £5k per scheme up to £10k per scheme depending on number of successive failures
- Enabler penalties: applies to those who allowed abusive tax avoidance to happen. Penalty is the consideration the enabler received for their role in the arrangement
97
What powers does HMRC have over tax?
- Can issue followers notice to TP with open inquiry or appeal if tax arrangement are shown in relevant judicial ruling not to give asserted tax adv
- Accelerated payment notices in following cases
> issue of follower notice
> Tax arrangement disclosable under DOTAS
> Hmrc is taking counteraction under GAAR
- Promoters of tax avoidance schemes can be issued with conduct notices for up to 2 yrs
98
What can promoters of tax avoidance schemes (POTAS) get from HMRC?
- Can be issued with conduct notices for up to 2 yrs
- Breaches of conduct can lead to penalty of up to £1m and can allow HMRC to disclose info re the promoter
- Clients of monitored promoter are subject to extended assessing period of 20yrs if tax is lost for failure to pass on ref number to promoter
99
What issues do you need to consider when answering exam questions?
- Who are you working for?
- Who is the client?
- What is your relationship with the client?
- What are you being paid to do?
- Who is providing you with the info?
Don't jump to immediate conlcusion - exercise professional scepticism where poss
How should it be dealt with? Client letter? or is this tipping off?
