TC ethics

Question 1

5 fundamental principles

Answer 1

Professional behaviour
Confidentiality
Professional competence and due care
Integrity
Objectivity

Question 2

5 threats to compliance with fundamental principles

Answer 2

self interest
self review
advocacy
intimidation threat
familiarity

Question 3

Safeguards against threats (10)

Answer 3

The following reduce the above 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.
If appropriate safeguards cannot be implemented the accountant should:
 decline/discontinue the specific service
 resign where necessary.

Question 4

What standards has professional conduct in relation ton taxation (PCRT) developed? (5)

Answer 4

Client specific
Lawful
Disclosure and transparency
tax planning arrangements
professional judgement and appropriate documentation

Question 5

Define the PCRT standard of Lawful.(4)

Answer 5

Members must act so and expect the same from their clients
-tax planning should be baed on a realistic assessment of all facts on a creidble view of law,
members should draw their clients attention to material uncertainties (eg if HMRC is known to view th elaw differently)
-members should consider taking further advice appropraite to the risks and circumstances of the particular case, for exmaple where litigation is likely.

Question 6

Define PCRT client specific.(1)

Answer 6

tax planning must be specific to a particular client facts and circumstances. Clients must be alerted to any risks and implicatons of any courses of action

Question 7

Define PCRT disclosure and transparency.(1)

Answer 7

tax advice must not rely for its
effectiveness on HMRC having less than the relevant facts. Any
disclosure must fairly represent all the relevant facts.

Question 8

Define PCRT tax planning arrangements.(2)

Answer 8

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 or highly contrived and seek to exploit
shortcomings within the relevant legislation.

Question 9

Define PCRT professional judgement and approp documentation.(1)

Answer 9

applying these requirements to particular client advisory situations
requires members to exercise professional judgement on a number
of matters. Members should keep notes on a timely basis of the
rationale for the judgements exercised in seeking to adhere to these
requirements.

Question 10

What should a member do if they encounter an ethical conflict? (4)

Answer 10

1) Consider the following factors:
 the relevant facts and parties
 the ethical issues involved
 the fundamental principles relating to the matter in question
 any established internal procedures
 possible alternative courses of action.
2) If the conflict remains unresolved, the member should then seek advice within the member’s own firm and document the advice given.
3) If the member is a sole practitioner or cannot resolve the matter internally, the member should seek legal advice or advice from the ICAEW.
4) If the ethical conflict cannot be resolved, the member should consider withdrawing from the engagement/conflict situation.

Question 11

What should members do if they identify conflict of interest?(3)

Answer 11

 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.

Question 12

If consent to act what safeguards should be put in place for conflict of interest?(6)

Answer 12

Use separate engagement teams.
 Impose procedures to prevent access to information.
 Issue guidelines to team members re: security and confidentiality.
 Use confidentiality agreements for partners/employees.
 Regularly review safeguards; this should be done by senior not involved with
engagements.
 If the conflict cannot be resolved consider not accepting/resigning from one
engagement

Question 13

Secondments to HMRC and PCRT.(2)

Answer 13

The secondee should serve the interests of HMRC whilst on secondment and avoid
any situation where there is scope for a conflict of interest between HMRC and the
employer. In particular:
 The secondee should not be involved in matters relating to his, her or their
employer or employer’s clients whilst working for HMRC.
 After the secondment, the secondee should not be involved in the affairs of any
taxpayer the secondee was involved with at HMRC for a significant period

Question 14

What should an engagement set out.(2)

Answer 14

Any services provided should be subject to an engagement letter.
This is the contract between the accountant and client, which sets
out each party’s responsibilities.
 The engagement letter should explain whether the accountant is
acting as agent or principal in respect of this engagement.
 There should be an engagement letter covering each separate
contractual relationship (e.g. one per spouse or civil partner).

Question 15

Professional indemnity insurance cover as per ICAEW as well as how long cover should maintain if they cease in public practise.(3)

Answer 15

According to the ICAEW’s PII Regulations the minimum amount of indemnity is:
-if the gross fee income of a firm is less than £600,000: 2.5 times its gross fee
income, with a minimum of £100,000.
-otherwise: £1.5 million.
When a member ceases to be in public practice the member should ensure the cover continues for at least two years.

Question 16

Who over sees data protection? what happens for non compliance?(3)

Answer 16

ICO must be informed within 72 hours of any breach

Non compliance can lead to:
cirminal conviction as per breach of data protrction act
fine of 20million euros or 4% firms global turnover (higher of)

Question 17

The Data Protection Act 2018 enacts the principles set down in the EU’s General Data Protection Regulation (GDPR). These are: (6)

Answer 17

 Lawfulness, fairness and transparency: there must be valid grounds for holding the data. The data must be processed fairly and there must be openness about how it is used from the start.
 Purpose limitation: the purpose for holding the data must be specified from the start. It 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 is necessary. The firm should have a data retention policy which can be justified.
 Integrity and confidentiality: when processing data the firm must take appropriate security measures.

Question 18

Professional Conduct in Relation to Taxation advises that precautions should be taken to prevent unauthorised access to client information, such as: (5)

Answer 18

Computers should be kept physically secure.
 Access credentials (e.g. passwords) should be kept safe from unauthorised
use.
 Passwords should be changed regularly; the HMRC recommendation is once
every three 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.

Question 19

What is an abusive tax arrangement?

Answer 19

One that contains contrived steps which exploit shortcomings in the tax provisons. The general anti-abuse rule (GAAR) enables HMRC to challenge these.

Question 20

What does PCRT state about aggressive tax planning?(1)

Answer 20

PCRT states that ‘a member should always advise the client that there may be wider
reputational issues’ associated with aggressive tax planning and warns members to
always ‘consider the potential negative impact of their actions on the public
perception of the integrity of the tax profession more generally’.

Question 21

Aggressive tax planning could lead to:

Answer 21

significantly greater compliance requirements in the future
 significantly greater scrutiny of the member’s work/the client’s tax affairs
 investigation of the member’s work/the client’s tax affairs
 criticism from the media, government and other stakeholders
 difficulties in obtaining PII cover (for the member).

Question 22

The main forms of tax evasion are: (2)

Answer 22

suppressing information e.g. failing to declare taxable income to HMRC
 submitting false information e.g. claiming expenses that have not been incurred.

Question 23

Businesses need to have robust procedures in place to reduce exposure to tax evasion, including: (6)

Answer 23

 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 management concerning the risks
and setting out procedures for minimising those risks.
 performing due diligence.
 communicating the offences to staff and providing training.
 monitoring and reviewing any procedures introduced.

Question 24

What is the tax gap? How does HMRC try to minimise this? (2)

Answer 24

The tax gap is the difference between the total amount of taxes
owed to the government and the actual amount received by the
government.

HMRC uses data sets drawn from a variety of sources to reduce the tax gap. For
instance, Real Time Information (RTI) for PAYE has given HMRC more accurate
information about a large number of taxpayers (e.g. current home date addresses),
making it easier for HMRC to find taxpayers who have underpaid their income tax

Question 25

Making tax digital (MTDfB) is…(3)

Answer 25

-HMRC is introducing Making tax digital for business (MTDfB) which will abolish tax returns for millions of individuals and small businesses through the introduction of digital tax accounts.
-All VAT registered businesses are required to use the MTDfB system to meet their VAT obligations. This means that a business’s VAT returns are created and sent directly to HMRC via the business’s digital record keeping software.
-Making tax digital for income tax will be introduced from the tax year 2024/25.

Question 26

A person is engaged in money laundering if the person: (3)

Answer 26

 conceals, disguises, converts, transfers, or removes (from the UK)
criminal property (including the proceeds of tax evasion).
 enters into, or becomes concerned about, an arrangement the
member knows or suspect facilitates the acquisition, retention, use
or control of criminal property (including the proceeds of tax
evasion).
 acquires, uses or has possession of criminal property (including
the proceeds of tax evasion).

Question 27

WHat is POCA and SOCPA?

Answer 27

 Proceeds of Crime Act 2002 (POCA) as amended by the Serious Organised
Crime and Police Act 2005 (SOCPA)

Question 28

What anti money laundering procedures must be adpopted by an accountancy practise?(6)

Answer 28

-Register with a supervisory body eg ICAEW
-Appoint an MLRO
-Train staff
-Implment internla repotting procedures (and report to MLRO if suspect it who may then report to NCA using a SAR form
-maintain records of all transaactions for each client (5 years after completion)
-verify identity of all new clients-due dligigence and maintain evidence 5 years post ending relationshiop

Question 29

Penalties in relation to money laundering.(4)

Answer 29

• unlimited fines
  -up to 14 years imprisonment for most money laundering offences
  -up to 5 years imprisonment for failing to report an offence
• up to 2 years imprisonment for tipping off or imprisonment for contravention of the systems requirements of the regulations.

Question 30

Defences against failure to report.(4)

Answer 30

-member does not actually know or suspect money laundering and hasnt been provided with training required (though this is then an offence on the employer)
-reasonable excuse for not report (eg threat to safety, only extreme cases)
-it is knonw or believed tjat money laundering is occuring outside the uK and it is not unlawful in the countrt it is occuring in
-member has reasonable grounds for knowing or suspecting but is exempted form making a report where this knowledge arose from privleged curmcumstances (privledge reporting exemption)

Question 31

Economic crime (anti money laundering levy), what is it and how ot calc?(2)

Answer 31

A levy on entities that are regulated for money laundering purposes (e.g. auditors
and estate agents) was introduced in the Finance Act 2022. The levy will be used by
the government to tackle economic crime. It will be charged on regulated businesses
based on their revenue in FY2022, but will be collected during FY2023Figures in OBT

Question 32

PCRT suggests that an isolated error resulting in a loss of tax of less than £200 might be considered to be de minimis. If a member discovers an HMRC error larger than this the member should: (4)

Answer 32

-seek client authority to advise HMRC of the error (usually in engagement 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, the member will cease to act for client.
-keep written records of all correspondence and the actions taken.

Question 33

If HMRC produces a tax advantageous error for a client and they refuse to make the appropriate disclosure then the member must: (5)

Answer 33

-cease to act for the client.
-inform HMRC in writing that the member no longer acts for the client but without disclosing why the member is ceasing to act.
-consider withdrawing any reports signed (e.g. audit reports) if it is discovered that they may be misleading. The engagement 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 money laundering report should be made to the firm’sMLRO.
- consider carefully and respond with caution to any professional enquiry letter.

Question 34

Procedures for dealing with errors under self assesment.(3)

Answer 34

If a member discovers an error made by the client or the member’s firm the member should:
- seek client authority to amend the self-assessment return, or, if the deadline for amendments has passed, to advise HMRC of the error.
- warn the client of possible consequences of not advising HMRC of the error (interest/penalties).
- keep written records of all correspondence and the actions taken.