15. TC - Ethics Flashcards
What are the 5 fundamental principles?
Integrity Objectivity Professional competence and due car Professional behaviour Confidentiality
Define integrity
Members should act in a straight forward and honest manner when performing their work
Define objectivity
Members should not allow prejudice or bias, or the influence of others to override objectivity
Define professional competence and due care
Members must exercise sound judgement in applying professional knowledge and skill
What are the consequences of members being obliged to carry out professional competence and due care?
Members must exercise sound judgement in applying professional knowledge and skill
Members should not undertake work that they are not competent to carry out
Member have an ongoing duty to maintain prof knowledge and skills
Members should carry ut their work with due care having regard to the nature and scope of the assignment
Define professional behaviour
Members should refrain from any conduct that might bring discredit to the profession
Define confidentiality
Members should respect the confidentiality of info acquired as a result of prof and business relationships
Members shouldn’t disclose any such info to 3rd parties unless
- have proper and specific authority
- there is a legal or prof right or duty to disclose e.g. money laundering
Should not be used for personal advantage of members or third party
What are the threats to compliance?
Self interest Self review Advocacy Familiarity Intimidation
Define self interest
Threat may occur as a result of a members/ their families financial or other interests influencing behaviours or decision of the member
Define self review
Threat may occur when a previous judgement needs to be re-evaluated or reviewed by the same person responsible for that judgement
Define advocacy
Threat may occur when a member promotes a position or opinion to the point that objectivity may be compromised
Define familiarity
Threat may occur when, because of a close relationship, a member becomes too sympathetic to the interests of a client
Define intimidation
Threat may occur when a member is deterred from acting objectively by actual or perceived pressures from others
Give some examples of safeguards against threats
Following reduces threats
- Education/ training/ experience required for entry into profession
- CPD requirements
- Corporate governance regulations
- Professional standards
- Monitoring/ disciplinary procedures
- External review
- Complaints systems
- Explicitly stated duty to report breaches of ethics
What must be done if appropriate safeguards can’t be implemented?
Accountant should
- Decline/ discontinue the specific service
- Resign where necessary
What doe PCRT stand for?
Professional Conduct in Relation to Taxation
Who produced the PCRT?
Various accountancy and taxation bodies
What does the PCRT do?
Includes practical advice about ethical and legal issues arising in the course of tax work
Considers the relationship with both clients and HMRC
Has produced 5 standards which professional accountants must observe when advising tax planning
What are the 5 standards which prof accs must observe when advising on tax planning
Client specific Lawful Disclosure Tax planning on arrangements Professional judgement and appropriate documentation
Where can the 5 standards which prof accs must observe when advising on tax planning be found?
In the PCRT Prof Conduct in Relation to Taxation
Describe the standard in the PCRT that states prof accountants must be Client Specific when advising on tax planning
Tax planning must be specific to a particular clients FACTS and CIRCUMSTANCES
Clients must be alerted to the wider risks and the implications of any courses of actions
Describe the standard in the PCRT that states prof accountants must be lawful when advising on tax planning
At all times 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 the facts, and on a credible view of the law
- Members should draw their clients’ attention to material legal uncertainties e.g. HMRC is known to view the law differently
- Members should consider taking further advice appropriate to the risks and circumstances of the case, e.g. where litigation is likely
Describe the standard in the PCRT that states prof accountants must have full disclosure and transparency when advising on tax planning
Tax advice must not rely on HMRC having less than the relevant facts for it to be effective
Any disclosure must fairly represent all the relevant facts
Describe the standard in the PCRT that states prof accountants must provide tax planning arrangements when advising on tax planning
Members must not create, encourage or promote tax planning arrangements or structures that
- Set out to achieve results that are contrary to the clear intention of Parliament in enacting relevant legislation
- Are highly artificial / contrived and seek to exploit shortcomings within the relevant legislation
Describe the standard in the PCRT that states prof accountants must provide professional judgement and appropriate documentation when advising on tax planning
Applying these requirements to particular client advisory situations requires members to exercise prof judgement on a number of matters
Members should keep notes on a timely basis of the rationale for the judgement exercised in seeking to adhere to these requirement
What steps should be followed when an ethical conflict arises?
- Consider the following factors
- The relevant facts and parties
- Ehical issues invovled
- Fundamental principles relating to the matter in question
- Ay established internal procedures
- Possible alternative courses of action - If the conflict remains unresolved, the member should then seek advice within their own firm and document the advice given
- If the member is a sole practitioner or can’t resolve the matter internally, they should seek legal advice o advice from the ICAEW
- If the ethical conflict can’t be resolved, the member should consider withdrawing from the eng/ conflict situation
What must members to to identify conflicts of interest?
Reasonable steps should be taken
This would also then identify threats to compliance with fundamental principles
Who can conflict of interest arise between?
Firm and client
2 clients managed by the same firm
What steps should be taken if a conflict of interest arises?
Notify relevant parties of any 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
If consent is given after a conflict of interest has arisen, what safeguards should be implemented?
- Use separate eng teams
- Impose procedures to prevent access to info
- Use confidentiality agreements for partners/ e’ees
- Regularly review safeguards: should be done by senior not involved with the engagement
- If the conflict can’t be resolved, consider not accepting/ resigning from 1 eng
If consent is given after a conflict of interest has arisen, what safeguards should be implemented?
- Use separate eng teams
- Impose procedures to prevent access to info
- Use confidentiality agreements for partners/ e’ees
- Regularly review safeguards: should be done by senior not involved with the engagement
- If the conflict can’t be resolved, consider not accepting/ resigning from 1 eng
How is a secondment to HMRC dealt with where it considers a potential conflict?
Second should serve in the interests of HMRC whilst on secondment and avoid any situation where there is scope of conflict of interest between HMRC and their e’er
Especially
- Shouldn’t be involved in matters relating to their e’er when at HMRC
- After secondment, second shouldn’t be involved in the affairs on any taxpayer they were involved with at HMRC for a significant period
How is a secondment to HMRC dealt with where it considers a potential conflict?
Second should serve in the interests of HMRC whilst on secondment and avoid any situation where there is scope of conflict of interest between HMRC and their e’er
Especially
- Shouldn’t be involved in matters relating to their e’er when at HMRC
- After secondment, second shouldn’t be involved in the affairs on any taxpayer they were involved with at HMRC for a significant period
What does an agent do?
They prepare docs on the clients behalf
But the client is responsible for these documents
E.g. will perform tax compliance work and submit returns
Since the agent isn’t normally liable for incorrect info, this is a relatively low risk activity
What is the role of the principal?
They provide advice on the tax consequences of certain courses of action
Is responsible for the advice given
So is liable if advice is incorrect or inappropriate
relatively high risk activity
What is the main thing tax advisors should consider when accepting a new client?
Whether they are competent to perform any required services by the agent
What does an engagement letter include?
Any services provided should be subject to an eng letter
Should explain whether the acc is acting as agent or principal
There should be an engagement letter covering each separate contractual relationship
1 per spouse
What is the role of a engagement letter
To display each parties responsibility
Should explain whether acc is acting as agent or principal
What does PII stand for?
Professional indemnity insurance
What does Professional Indemnity Insurance do?
Protects members against a cost of settling or defending a client’s claim that there is a problem with the member’s work
Who is required to have PII?
Every qualified member of ICAEW in public practice must have PII
But employed members will normally be covered by their e’ers insurance policy
What is the minimum amount of indemnity?
If the gross fee income of the firm is less than £600k, 2.5x its gross fee income (with minimum of £100k)
- Otherwise £1.5m
How long must PII cover a member when they cease to be in public practice?
Cover should continue for at least 2 years
Who has an obligation to protect data under Data Protection Act 2018?
Anyone who handles personal data
Who is the data Protection Act overseen by?
Information Commissioner’s Office (CIO)
What must be done if there is a breach that affects the rights and freedoms of indivs?
Under Data Protection Act
The Information Commissioners Office (ICO) must be informed within 72 hours of the breach
What are the penalties for non-compliance with the Data Protection Act?
- Criminal Conviction when a criminal offence under the Data Protection Act has been committed
- A fine of up to 20m euros or 4% of the firms global turnover
What are the principles surrounding GDPR?
- Lawfulness, fairness and transparency (there must be valid grounds for holding the data. It must be fairly processed and there must be openness about how it is used from the start)
- Purpose limitation: purpose of holding the data must be specified from the start. it also must be a legitimate purpose
- Data minimisation: Data should be adequate, relevant and not excessive for the stated purpose
- Accuracy: Data should be accurate and up to date
- Storage limitation: Data should not be kept for longer than necessary. Th e firm should have a data retention policy which can be justified
- Integrity and confidentiality: when processing data the firm must take appropriate security measures
Describe the following principle of GDPR
Lawfulness, fairness and transparency
- Lawfulness, fairness and transparency (there must be valid grounds for holding the data. It must be fairly processed and there must be openness about how it is used from the start)
Describe the following principle of GDPR
Purpose limitation
- Purpose limitation: purpose of holding the data must be specified from the start. it also must be a legitimate purpose
Describe the following principle of GDPR
Data minimisation
- Data minimisation: Data should be adequate, relevant and not excessive for the stated purpose
Describe the following principle of GDPR
Accuracy
- Accuracy: Data should be accurate and up to date
Describe the following principle of GDPR
Storage limitation
- Storage limitation: Data should not be kept for longer than necessary. Th e firm should have a data retention policy which can be justified
Describe the following principle of GDPR
Integrity and confidentiality
- Integrity and confidentiality: when processing data the firm must take appropriate security measures
Give some examples of recommendations for precautions that should be taken to prevent unauthorised access to client info
Computers should be kept physically secure
Access credentials (e.g. passwords) should be kept safe from unauthorised use
- Passwords should be changed regularly: HMRC recommendation is once every 3 months
- Any unusual or unexpected activity on a client’s online HMRC records should be reported to HMRC immediately
- Suspicious emails claiming to be from HMRC should be forwarded to HMRC’s phishing team
Define tax planning
Means using the tax legislation legally and as intended to minimise tax bills, but pay the correct amount of tax
e.g. use of ISAs
Define tax avoidance
Is using any legal method to reduce an entity’s tax burden, even if the method is now following the intent of the law
E.g. artificially using foreign jurisdictions with low tax rates
Is tax avoidance legal
Strictly yes, but it is seen as morally questionable and tax avoidance measures are not always effective
Give some examples of why tax avoidance methods are not always effective
- Promoters of tax avoidance schemes are now required to disclose details to HMRC, enabling HMRC to close loopholes quickly
- Courts may disregard elements of transactions that have no commercial purposes (i.e. they have been designed with the main aim of avoiding tax)
- General anti-abuse rule (GAAR) enables HMRC to challenge abusive tax avoidance arrangements
Define an abusive tax arrangement
One that contains contrived steps which exploit tax shortcomings in the tax provisions
What does PCRT recommend advisers notify their clients about re tax planning/
Should advise the client that there may be wider repetitional issues associated with aggressive tax planning and wants members to always consider the potential -ve impact of their actions on the public perception of the integrity of the tax profession more generally
What could aggressive tax planning lead to?
- Significantly greater compliance requirements in the future
- Signif greater scrutiny of the member’s work/ clients tax affairs
- Investigation of the member’s work/ clients tax affairs
- Criticism from the media, gvmt or other stakeholders
- Difficulties in obtaining PII cover (for the member)
What is tax evasion deemed to be the equivalent of?
- Theft
- Drug smuggling
- Other criminal conduct
Define tax evasion
Deliberately misleading HMRC to pay less tax than is due
Illegal activity and carries the risk of criminal prosecution eg. fines or imprisonment
What are the main forms of tax evasion?
- Supressing info e.g. failing to declare taxable income to HMRC
- Submitting false info e.g. claiming expenses that haven’t been incurred
Why can individuals who are aware of tax evasion be punished?
As it is a criminal offence is a business fails to prevent its employees/ associated persons such as contractors from committing tax evasion
What are the procedures that businesses must have in place to reduce their exposure to tax evasion?
- Undertaking a risk assessment to ascertain weaknesses in the control environment
- Introducing any further controls found to be needed following the risk assessment
- Securing top level commitment from senior man concerning the risks and setting out procedures to minimise those risks
- Performing due diligence
- Communicating the offences to staff and providing training
- Monitoring and reviewing any procedures introduced
What is the tax gap?
Diff between the total amount of taxes owed to the gvmt and the actual amounts received by the gvmt
What is data analytics?
It is a process of examining data sets to draw conclusions about info contained
E.g. whether income is understated on a tax return
How can HMRC use data sets?
Used to draw from a variety of sources to reduce the tax gap
E.g. Real Time Info (RTI) for PAYE has given HMRC more accurate info re large number of tax payers (e.g. current home addresses). Makes i t easier for HMRC to find taxpayers who have underpaid their income tax
What does MTDfB stand for?
Making tax digital for businesses
Describe MTD and the implications it has had on accountancy
From 1 April 2019, bus with turnover over VAT registration threshold are required to use MTDfB system to meet their VAT obligations
- This means that such a business’s VAT return will be created and sent directly to HMRC via the bus’s digital record keeping software
When is an individual engaged in money laundering?
If they
- Conceal, disguise, covert, transfer or remove from UK criminal property (including proceeds of tax evasion)
- Enters into or becomes concerned about, an arrangement they know or suspect, facilitates the acquisition, retention or use or control of criminal property
- Acquires, uses or has possession of criminal property
What regulations are accountants required to comply with relating to AML?
Proceeds of Crime Act (POCA) 2002 as amended by the Serious Organised Crime and Policy Act (2005) (SOCPA)
Money Laundering regulations of 2007
What anti money laundering procedures must be adopted by an accountancy practice?
- Must register with an appropriate supervisory body e.g. ICAEW
- Appoint a Money Laundering Reporting Office (MLRO)
- Implement internal reporting procedures. If a member suspects a client of money laundering, they should make an internal report to MLRO who must decide whether to report suspicions to the NCA using SAR form
- Train staff
- Establish internal procedures
- Verify the identity of all new clients and maintain evidence (for 5 years after client relationship termination)
- Maintain records of all transactions undertaken for each client (5 yrs)
What anti money laundering procedures must be adopted by an accountancy practice?
- Must register with an appropriate supervisory body e.g. ICAEW
- Appoint a Money Laundering Reporting Office (MLRO)
- Implement internal reporting procedures. If a member suspects a client of money laundering, they should make an internal report to MLRO who must decide whether to report suspicions to the NCA using SAR form
- Train staff
- Establish internal procedures
- Verify the identity of all new clients and maintain evidence (for 5 years after client relationship termination)
- Maintain records of all transactions undertaken for each client (5 yrs)
Can disclosure of confidential info be disclosed to meet money laundering requirements?
Yes, may have to disclose confidential info
- Acc must have knowledge or suspicion that a person has committed money laundering offences
- It is an offence to tip off the money launderer
What is the money laundering penalty for the following offence
Failing to report an offence
5 years imprisonment
What is the money laundering penalty for the following offence
Tipping off
2 years imprisonment
What is the money laundering penalty for the following offence : contravention of systems requirements of the regulations
2 years imprisonment
What are the penalties that apply to money laundering?
Unlimited fines
Up to 14 years imprisonment for most money laundering offences
- 5 years imprisonment for failing to report an offence
- Up to 2 years for tipping off
- Up to 2 years for contravention of systems requirements of the regulations
What are the defences against failing to report AML?
- The member doesn’t actually know/ suspect more laundering has occurred and hasn’t; been provided with the required training by e’er. Although this is then often an offence for the e’er
There is a reasonable excuse for not making a report (acceptable only in extreme circumstances such as threats to safety) - It is known, or reasonably believed that the money laundering is occurring outside the UK, and is now unlawful under the criminal law of the country where it is occurring
Give some examples of HMRC errors that may work in the clients favour
How can they be in the clients favour?
HMRC made a mistake in the form of
- Error of law
- Calculation/ clerical error
- Misunderstanding of facts
Can be adv to taxpayer if
- Inadequate assessment
- Under collection of tax/int
- Over repayment of int/tax
Whose fault is a HMRC error?
HMRC’s
But it a criminal offence to deliberately intend to benefit from a HMRC error
What is the procedure for dealing with HMRC errors?
- PCRT suggests that an isolated error resulting in a loss of tax under £200 may be considered deminimis
If a ember discovers an error later than this they should - Seek client authority to advice HMRC of the error (usually in eng letter)
- Warn the client of possible legal consequences of not advising HMRC on the error
- Advice that if consent is not given to contact HMRC, they will cease to act for the client
- Keep written records of all correspondence and actions taken
What action should be taken a client has been made aware that HMRC has made an error but continues to refuse to make appropriate disclosure
- Cease to act for the client
- Inform HMRC in writing that they no longer act for the client, but without disclosing why they are ceasing to act
- Consider withdrawing any signed reports e.g. audit reports, if it is discovered that they may be misleading
- Consider whether a ML Report should be made to MLRO
- Consider carefully and respond with caution to any prof enquiry letter
What can the mistakes that HMRC take the form of
Error of law
Calc/clerical error
Misunderstandings facts
How can HMRC errors be advantageous to the taxpayer?
Inadequate assessment
under collection of tax/interest
over-repayment of tax/interest
Can individuals benefit from HMRC errors?
No it is a criminal offence to
When can isolated errors resulting in a loss of tax for HMRC be deemed de minimis?
Errors under £200
What does a member do if they discover a HMRC error ?
- Seek client authority to advise HMRC of the error (usually in eng letter)
- Warn the client of possible legal consequences of not advising HMRC of the error
- Advise that if consent is not given to contact HMRC, he or she will cease to act for client
- Keep written records of all correspondence and the action taken
What must be done is a client continues to refuse to make the appropriate disclose about the error to HMRC?
The member must
- Cease to act for the client
- Inform HMRC in writing that they no longer act for the client but without disclosing why they are ceasing to act
- Consider withdrawing any reports signed (e.g. audit reports) if it is discovered that they may be misleading. Eng letter should be checked to see if it contains authority to directly disclose to HMRC that the report may be misleading, and if no authority is found, the client’s consent should be requested to disclose
- Consider whether a ML report should be made to firm’s MRLO
- Consider carefully and respond with caution to any professional enquiry letter
What is the procedure if member discovers an error made by the client or the member’s firm?
They should
- Seek client authority to amend SA return, or if the deadline for amendments has passed, to advise HMRC of the error
- Warn the client of possible consequences and the actions taken
