It is now one year since the Chancellor George Osborne and then chief secretary to the Treasury Danny Alexander told the accounting professional bodies to tighten up the rules or the government would consider regulatory framework, in a statement issued after Budget 2015 last March.

A statement issued on 19 March last year called on ‘the tax and accountancy professional regulatory bodies who police professional standards to maximise their role in setting and enforcing clear standards around enabling and promoting avoidance’.

It is understood that the institutes’ joint professional code of conduct in relation to taxation (PCRT) is being revised.

The updated code must come into force by 1 July 2016 at the latest and if agreed, will be sent out to the members of the various institutes in advance of publication of the final conduct for feedback.  Preparations for this are already underway with documentation likely to be sent to members within the next few weeks.

The government could still decide that the profession has not gone far enough and although it is possible that it will accept the revised version, even if it is subject to HMRC review, it could well  come up with tougher sanctions, perhaps even within in a regulatory framework.

Senior staff changes at HMRC and a major governance overhaul will see the arrangements for assuring large tax settlements completely reviewed, which is likely to change the climate for multinational tax deals. This follows widespread criticism of the recent tax deal with Google which resulted in the settlement of a £300m plus payment.

Revising the Professional Conduct in Relation to Taxation (PCRT)

The government’s challenge to the profession to govern itself more effectively requires the publication of a revised Professional Conduct in Relation to Taxation (PCRT), which should be agreed this month, a year after the initial Treasury call for action.

The code is currently written by a collaboration of the seven professional institutes – ICAEW, CIOT, ICAS, AAT, ACCA, ATT and STEP – and is usually updated on an annual basis. The latest revised draft code is understood to be at the final draft stages with publication of a revised PCRT imminent. 

The working group, which is chaired by Chris Sanger, head of tax policy at EY, and has representation from the seven bodies, including Frank Haskew and Ian Young of the ICAEW tax faculty, and John Cullinane, tax policy director at CIOT, is close to finalising the revised code, which it had been expected would be submitted to the Treasury before the Budget on 16 March with an update from the government likely to be published in the Budget papers later this week.

Call for tough action

National head of tax and partner at Grant Thornton, Jonathan Riley, said: ‘The government could put this out to review to Jon Thompson, the new chief of HMRC or they could decide to come up with something tougher. With the public spotlight on tax issues, I don’t think the government is going to take this lying down.

'The PCRT needs to be tough otherwise they may well say that we tried to allow the tax profession to self regulate, but maybe we do need to regulate.

I can say that the tax profession hasn’t always got it right, that we have been part of the problem, but we want to help create a solution, not merely spectate

Jonathan Riley, national head of tax and partner, Grant Thornton

‘I can say that the tax profession hasn’t always got it right, that we have been part of the problem, but we want to help create a solution, not merely spectate. But I genuinely believe that the tax regime does not work for a modern digital world. We are still looking at things in an old world way – we need a tax regime that is fit for today, not for 100 years ago,’ he added. ‘The world has demonstrably moved on, five years from now I wonder if there will be the same cases.’

In a week where three major tax cases hit the headlines with HMRC winning the Stagecoach case which has run for over a decade, as well as the Deutsche Bank and UBS dispute over tax payable on bonuses paid as shares, and the Rangers FC EBTs case given leave to appeal to the Supreme Court plan and, the government may well use the Budget as a platform to issue more rules and regulations to clamp down on aggressive tax planning.

While the PCRT tax code of conduct is being strengthened other voices in the profession are calling for a kitemark, which is something that KPMG, along with Michael Izza, chief executive of the ICAEW, has been keen to promote. Riley thinks this would be difficult to achieve and there has not been much progress on the project as yet. There is also conflict with HMRC who has long called for its own accreditation system for tax advisers, something which the profession is vehemently opposed to. Last autumn, HMRC again called for an accreditation system through the tax authority, which would lack independence.

The last updated version of the PCRT was issued jointly by the professional bodies on 1 May 2015.

Lack of regulatory framework 

Unlike the audit profession, which is tightly regulated and inspected on an annual basis by the regulator, the Financial Reporting Council, and has to adhere to very strict ICAEW governance and conduct rules, the tax profession does not have any statutory regulations and neither do tax advisers need to belong to a professional body to practice.

To meet the government’s challenge on reducing aggressive tax avoidance, particularly that which is seen as acceptable by the profession but increasingly viewed as unacceptable by the public and MPs, the main work on the PCRT is focusing on tightening the guidance and code of conduct on standard tax planning.

The current guide covers tax planning versus tax avoidance and the responsibility of a member in giving tax planning advice. It states that ‘a member [adviser] must explain to his client the material risks of the tax planning or tax positions and the basis on which the advice is given’.

Para 4.15 states that ‘the member should consider carefully whether the planning in question is robust, whether it could be successfully challenged by HMRC, as well as the reputational risk for the member and the client in being involved in such a transaction’.

It goes on to state that ‘ultimately it is the client’s decision as to what planning is appropriate having received advice and taking into account their own broader commercial objectives and ethical stance. However the member should ensure that the client is made aware of the risks and rewards of any planning, including that there may be adverse reputational consequences. It is advisable to ensure that the basis for recommended tax planning is clearly identified in documentation,’ in para 4.30.

The joint guidance published on 1 May 2015, Professional Conduct in Relation to Taxation (PCRT), taxguide_0115_tech_0215_pcrt.pdf