THE UK TAX SYSTEM, ETHICS & TAX

AVOIDANCE
HM Revenue and Customs (HMRC)
The treasury formally imposes and collects taxation. The management of the treasury is the
responsibility of the Chancellor of the Exchequer. The administration function for the
collection of tax is undertaken by HMRC

HMRC Main Duties:

1. Implement the tax laws
2. Oversee the tax admin
HMRC Staff
are known as "Officers of Revenue and Customs" Branches are all over UK Most taxpayers
never deal with HMRC direct - instead they file their tax returns online and pay
electronically (compulsory for companies) The responsibility for assessing how much tax is
payable is down to the taxpayer under a system called "self - assessment" Individuals can still
ask HMRC to calculate the tax though for them - companies can't

Commissioners
At the head of HMRC are the commissioners whose duties are: 1. To implement statue law 2.
Oversee the process of UK tax administration The main body of HMRC is divided into
District offices and Accounting and payment offices

District Offices
The Commissioner appoints Officers of HMRC to implement the day to day work of HMRC
Accounts and payment offices These concentrate on the collection and payment of tax
 ETHICS AND TAXATION

ACCA CODE OF ETHICS

The ACCA 'Professional Code of Ethics and Conduct' sets out the Much of the content has
already been covered in
standards of professional conduct expected from the members
your earlier studies as
and students of the Association, and sets a framework of principles ethics applies to every part
of the qualification.
that should be applied. Guidance is also contained within the However, at ATX the
'Professional Conduct in Relation to Taxation' provisions. principles must be learnt
and applied to tax
Failure to comply with this code could lead to disciplinary action scenarios to provide advice
to clients.

Fundamental Principles [PrOPIC]

Professional Behaviour
Integrity
Members must comply with
Members should be straightforward
relevant laws and avoid actions
and honest in all their professional and
that may discredit the profession
business relationships.

Objectivity

Members should not allow bias, Confidentiality

conflicts of interest or the influence of
others to override objectivity and to Members should respect the confidentiality of
affect their business decisions. information acquired as a result of professional
and business relationships and should not
disclose any such information to third parties
unless: they have proper and specific authority,
or there is a legal or professional right or duty to
Professional Competence & Due Care disclose (e.g. money laundering). Confidential
information acquired as a result of professional
Members have an ongoing duty to maintain
and business relationships, should not be used
professional knowledge and skills to ensure
for the personal advantage of members or third
that a client/employer receives competent,
parties.
professional service based on current
developments. Members should be diligent
and act in accordance with applicable
technical and professional standards when
providing professional services.
Conflicts of Interest
You should take reasonable steps to identify circumstances that could pose a conflict of
interest which may pose a threat to the fundamental principles
Conflicts can occur in the following situations:
- where a member acts for a client and is then asked to act for another party in a
transaction
- acting for both parties in a divorce
- acting for the employer and their employees
- where the advisor may benefit from the transaction.

Safeguards
Safeguards you should take to avoid a conflict of interest include:
➢ Notifying the relevant parties that there may be a conflict of interest
➢ Obtaining consent of the relevant parties to act for them If consent is refused, then
you must not continue to act for the parties in the matter that has given rise to the
conflict of interest.

The following additional safeguards should also be considered:

➢ The use of separate engagement teams

➢ Procedures to prevent access to information (eg, strict physical separation of such
teams, confidential and secure data filing)
➢ Clear guidelines for members of the engagement team on issues of security and
confidentiality
➢ The use of confidentiality agreements signed by employees and partners of the firm
➢ Regular review of the application of safeguards by a senior individual not involved
with relevant client engagements Where a conflict of interest poses a threat to one or
more of the fundamental principles, that cannot be eliminated or reduced to an
acceptable level through the application of safeguards, you should conclude that it is
not appropriate to accept a specific engagement, or that resignation from one or
more conflicting engagements is required

SITUATIONS THAT CAN POSE A THREAT TO

FUNDAMENTAL PRINCIPLES

New Client
❖ Before accepting a new client, you should consider whether acceptance of the client
or the particular engagement would create any threats to compliance with the
fundamental principles.
❖ Threats to integrity or professional behaviour may be created from questionable
issues associated with the client, for example, if they have engaged in tax evasion.
❖ Threats to professional competence and due care may be created if the
engagement team does not possess the necessary skills to carry out the engagement.
 ❖ Where it is not possible to implement safeguards to reduce the threats to an
acceptable level, you should decline to enter into the relationship.
❖ You should also consider the rules relating to money laundering before accepting a
new client.
What to do upon getting a new client

If it is a Ltd Co. Individual

The following information should be
gathered:
- Proof of incorporation and primary
business address and registered
office
- The structure, directors and
shareholders of the company.
- The identities of those persons
instructing the firm on behalf of the
company and those persons that are
authorised to do so.
The following information should be
gathered:
- Proof of identity and residential
address.
- Any unincorporated business
interests and if so details of the
nature and structure and those
persons that are authorised to act on
behalf of the business (e.g. partners
in a partnership).

You should contact the existing accountants to ascertain if there are any
matters you should be aware of when deciding whether to accept the
appointment or not. The existing accountants are bound by confidentiality.
his means the extent to which a client’s affairs may be discussed with a
prospective accountant will depend on the nature of the engagement and on
whether the client’s permission has been obtained.
If the client refuses permission, the existing accountants should inform you of
this refusal. You should then inform the client that you are unable to accept the
appointment.

Tax planning
❖ When you are providing tax planning advice to a client you are fully responsible for
the advice you give.
❖ The fundamental principle of professional competence and due care is relevant
here.
❖ Anything you recommend must be legal. You should understand the basic distinction
between tax avoidance and tax evasion.
❖ You may suggest arrangements which HMRC might disagree with your conclusion as
to the tax consequences.
❖ You need to explain to the client that full details must be given to enable HMRC to
consider the matter, and you should warn them that any negotiations with HMRC
will take time and incur expense
❖ Make sure that you know the time limits for any claims that need to be made and that
such claims are made within the limits
Errors by HMRC in the taxpayers’ favour
❖ Problems may arise if HMRC makes an excessive repayment of tax in error to a
taxpayer, even though HMRC has received full disclosure of the facts.
❖ This is a threat to the fundamental principle of integrity.
❖ If the repayment is made directly to the client, you should tell them to refund the
excess sum to HMRC as soon as possible.
❖ Failure to correct the error may be a civil and/or criminal offence by the client.
❖ If the client refuses you must consider whether you should continue to act for the
client. If you cease to act, you must notify HMRC that you no longer act for
the client, but you are under no duty to give HMRC any further details. It may be
necessary to consider whether a report should be made under the money laundering
rules.
❖ If the repayment is made to you on the client’s behalf, you must notify MRC.
Failure to do so could involve both you and client in a civil and/or criminal offence

Money Laundering

❖ All businesses within regulated sectors must appoint

a Money Laundering Reporting Officer (MLRO) Money laundering: The
within the firm. process by which criminals
❖ The MLRO will decide whether a transaction should attempt to conceal the true
be reported to the National Crime Agency (NCA). origin and ownership of the
❖ Where a report is made the client should not be proceeds of their criminal
informed as this may amount to 'tipping off', which activity. This can include tax
is an offence. A report to the NCA does not remove evasion.
the requirement to disclose the information to
HMRC
❖ When you take on a new client you should review their activities to satisfy yourself
that they are not engaged in money laundering.
❖ During the course of the engagement, you should regularly review the client’s actions
to satisfy yourself that they are consistent with the client’s usual activities.

How to identify the reliability of the client: - ee table under ‘New clients’ to see the
mandatory information you need to know about your client.
If satisfactory evidence cannot be obtained, no work should be undertaken.
You should retain all client identification records for at least five years after the end of the
client relationship, together with records of all work carried out for the client
What should you if you are dealing with a client who you know is evading tax?
The evasion or attempted evasion of tax is a threat to the fundamental principles of
integrity and professional behaviour. It may be also the subject of criminal charges
under both tax law and money laundering legislation

If the client fails to provide any

Y information requested by you,
O for example in preparing returns or
computations, you need to consider
U whether you can continue to act for
R the client.

RESPONSIBILITY

You should advise clients to make

full disclosure to HM Revenue &
Customs (HMRC), or to authorise
you to do so if errors exist in
information already submitted to
HMRC. If the client refuses then you
can no longer act for them. You
must inform HMRC that you are no
longer acting for the client but you
are not under an obligation to
explain why, as this would be a
breach of confidentiality.
 Tax avoidance Schemes

Direct Tax Serial Tax

avoidance Schemes avoidance schemes
VAT avoidance
schemes

Direct Tax avoidance Schemes

❖ A tax advantage is defined as relief or increased relief from tax, repayment or
increased repayment of tax, avoidance or reduction of a charge to a tax.
❖ A promoter is someone carrying on a business that includes or has included the
design, marketing, implementation, organisation or management of tax avoidance
schemes
❖ Promoters of tax avoidance schemes relating to direct taxes (income tax, national
insurance contributions, capital gains tax, corporation tax, inheritance tax and stamp
taxes) have disclosure obligations. There is also an obligation on taxpayers to
disclose details of schemes in certain cases
❖ A taxpayer is required to provide details of arrangements where the arrangements
have been purchased from an offshore promoter, and that promoter has made no
disclosure.
❖ Disclosure must also be made by large businesses which have entered into
arrangements not involving a promoter.
❖ HMRC may allocate a reference number to arrangements notified under the
disclosure rules. Promoters are required to notify clients of that reference number so
that they can enter that number on their tax return.
❖ Any person that fails to comply with any of the disclosure provisions is liable to a
penalty not exceeding £5,000.
❖ If the failure continues after that penalty has been imposed, that person is liable to a
further penalty or penalties not exceeding £600 for each day on which the failure
continues.

Value Added Tax (VAT) avoidance schemes

Any person that fails to comply with any of the disclosure provisions is liable to a penalty not
exceeding £5,000. If the failure continues after that penalty has been imposed, that person is
liable to a further penalty or penalties not exceeding £600 for each day on which the failure
continues.

Serial tax avoidance

Taxpayers who use more than one tax avoidance scheme which has been defeated
on or after 6 April 2017 may be classed as serial tax avoiders by HMRC. A defeated
scheme is one for which either:
➢ The taxpayer has reached an agreement with HMRC so the tax advantage that would
have been expected under the scheme is not available; or
➢ HMRC has obtained a favourable court or tribunal ruling about its assessment of the
scheme.

Such taxpayers will be issued with a serial tax avoidance warning notice which has effect for
five years that requires them to submit additional information to HMRC about their tax
affairs annually, for example their use of tax avoidance schemes.
Sanctions against serial tax offenders include:
➢ Penalties if further tax avoidance schemes are entered into during the notice period
increasing with the number of such schemes entered into
➢ Being publicly named as a serial tax avoider
➢ Restrictions on direct tax reliefs for up to three years

GENERAL ANTI-ABUSE RULE(GAAR)

he aim of the G R is to deter taxpayers from entering into abusive ‘tax arrangements’ and
to deter would-be promoters from promoting such arrangements.
he main purpose of ‘tax arrangements’ is to obtain a tax advantage, rather than, for
example, having a genuine commercial purpose.
Examples of abusive arrangements include those that result in:
• ignificantly less income, profits or gains
• ignificantly greater deductions or losses, or
• claim for the repayment or crediting of tax (including foreign tax) that has not been, and
is unlikely to be paid HMRC can counteract tax advantages by simply increasing the
taxpayer’s liability, on a just and reasonable basis.
A penalty will also be imposed if the taxpayer enters into arrangements which are countered
by the GAAR. The penalty is equal to 60% of the tax advantage gained.