General Principles
Tax advisers (and the advice) in the United Kingdom are regulated through a combination of:
- Professional Standards (such as the Professional Conduct in Relation to Taxation(PCRT))
- Legislation (e.g., Disclosure of Tax Avoidance Schemes (DOTAS), Promoters of Tax Avoidance Schemes (POTAS), Criminal Finances Act 2017)
- Judicial Interpretation of case law
- General Law (Contract and Tort)
Tax advisers must ensure that:
- Their advice complies with PCRT standards, which require integrity, objectivity, professional competence, due care, confidentiality, and professional behaviour (see generally: PCRT 2023 – ICAEW (Institute of Chartered Accountants in England & Wales) and corresponding guidance published by The Chartered Institute of Taxation and Association of Taxation Technicians).
- Their advice complies with current tax law and is not negligence.
- They have in place procedures to identify and mitigate risks of involvement in tax evasion and money laundering (and where appropriate make a suspicious activity report (SAR) to the National Crime Agency (NCA)).
Failure to comply can lead to professional disciplinary action, civil liability for negligence, and criminal liability.
Legislative Regulation
Tax planning arrangements (often called tax schemes) are subject to ever increasing statutory regulation to prevent abusive tax avoidance. It is very important to take advice before entering into any transaction which promises tax advantages to protect against unwanted tax liabilities. As HMRC often say, if something sounds to good to be true, it probably is (see HMRC publications such as No Safe Havens).
Key Legal Frameworks:
Broadly, the regulation of tax professionals has developed across each of the following areas:
A. Legislative regulation of tax schemes or planning thereby controlling the scope of what any tax professional can advise a client to consider in order to mitigate tax. Tax statutes have constantly evolved to reflects changes in government policies, to remove loopholes in the tax code and to respond to the behaviour of taxpayers. In RFC 2012 Plc (in liquidation) (formerly The Rangers Football Club Plc) v Advocate General for Scotland [2017] UKSC 45, Lord Hodge (at para 10) commented:
‘10. The legislative code for the taxation of income has developed over time to reflect changing governmental policies in relation to taxation, to remove loopholes in the tax regime and to respond to the behaviour of taxpayers. Such responses include the enactment of provisions to nullify the effects of otherwise successful tax avoidance schemes (or schemes which were apparently successful pending a definitive judicial determination). As a result, the legislative code is not a seamless garment but is in certain respects a patchwork of provisions. Over time, judicial decisions on the interpretation of sections of the tax legislation have assisted in clarifying the boundaries of those provisions. …’
Parliament has introduced legislation which enables HMRC to identify and then target appropriate responses to unacceptable forms of tax planning:
- Disclosure of Tax Avoidance Schemes (DOTAS): Introduced by the Finance Act 2004, DOTAS requires the disclosure of certain tax planning arrangements to HMRC (HMRC DOTAS Guidance).
- Promoters of Tax Avoidance Schemes (POTAS): Strengthened under the Finance Act 2014, introducing penalties and obligations for promoters (POTAS Guidance – GOV.UK).
- General Anti-Abuse Rule (GAAR): Introduced by the Finance Act 2013, it empowers HMRC to counteract abusive tax arrangements (GAAR Guidance – GOV.UK).
B. Judicial Regulation
Court regulation of ‘tax schemes’ through the interpretation of tax legislation have effectively determined the limits of what a tax professional can advise a client to implement when advising on the scope of tax legislation and the interaction of tax reliefs and charges. However, the approach by the courts to the interpretation of tax statutes was to initially adopt a formulaic and literalist interpretation which over a period of time has moved to a purposive construction (i.e. to promote the objectives of the legislation). In summary:
- W.T. Ramsay Ltd v Inland Revenue Commissioners [1982] AC 300: Introduced the principle that tax consequences should align with the real-world substance of transactions.
- Barclays Mercantile Business Finance Ltd v Mawson [2005] 1 AC 684: Lord Nicholls clarified that purposive construction applies — focusing on the legislative intent.
- UBS AG v Revenue and Customs Commissioners [2016] UKSC 13: Lord Reed confirmed that purposive interpretation is orthodox across all areas of tax law.
Thus, tax advice must not only consider the literal wording of the legislation but also the purpose and policy objectives behind the legislation.
C. Contractual and Tortious Duties
Under contract law, advisers owe clients a duty to perform services with reasonable skill and care (which should be identified and scoped out in the engagement letter). Each tax professional is subject to their contractual terms of engagement with a client as to the nature, content and quality of the advice to be provided, which generally ensures that a competent level of service is provided which does not fall below professional standards. If there is a breach of these terms, the client will be compensated under the law of contract.
In addition, to the adviser’s contractual duty, a claim may arise under the law of negligence if advice falls below the accepted professional standard, as confirmed in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145: recognising concurrent duties in contract and tort.
Clients may claim compensation if defective tax advice causes loss.
D. Professional Standards and the PCRT
The Professional Conduct in Relation to Taxation (PCRT) is issued jointly by professional bodies including CIOT, ATT, ICAEW, and ACCA.
A member of the relevant professional bodies must conduct themselves and their activities in accordance with the following key principles:
- Integrity: Be honest and straightforward.
- Objectivity: Avoid conflicts of interest.
- Professional competence and due care: Keep up to date and act diligently.
- Confidentiality: Respect confidentiality unless disclosure is authorised or legally required.
- Professional behaviour: Comply with laws and regulations, avoid any action discrediting the profession.
(See PCRT Full Text 2023 – ICAEW).
Importantly, under the Standards for Tax Planning, advisers must not create, encourage or facilitate tax planning arrangements that:
- Set out to achieve results contrary to the clear intention of Parliament
- Seek to exploit legislative shortcomings
- Fail to withstand scrutiny based on a realistic appraisal of facts and law
Each tax adviser regulated by a professional body is the subject of minimum professional standards imposed by their governing body. Failure to comply with such rules may result in financial penalties, public admonishment or even expulsion (e.g. see the powers of The Taxation Disciplinary Board (Home | The Taxation Disciplinary Board (tax-board.org.uk) over tax professionals regulated by CIOT and ATT).
E. Criminal and Regulatory Risks
Advisers must remain vigilant against facilitating tax evasion. The Criminal Finances Act 2017 imposes criminal liability where businesses fail to prevent associated persons from facilitating tax evasion.
Liability can occur even without management’s knowledge, and sanctions include:
- Unlimited fines
- Reputational damage
- Potential prison sentences
(See Criminal Finances Act 2017 – Legislation.gov.uk).
In addition, advisers are subject to the Money Laundering Regulations 2017: requiring customer due diligence and suspicious activity reporting (Money Laundering Regulations – GOV.UK).
This article was authored by tax barrister Julian Hickey who advises on all aspects of tax appeals, judicial reviews, tax-related criminal investigations (defence), matters arising from professional negligence, and appeals before the Disciplinary Tribunal (CIOT/ATT). If you require advice or representation in a tax matter, you can instruct Julian Hickey by contacting his clerk or emailing jhickey@burnellchambers.co.uk
Disclaimer
This article has been provided free of charge for information purposes only. Although care is taken to ensure the information is accurate no responsibility is assumed by the author or any member of Burnell Chambers for reliance on the content or the accuracy of such content. The information, and/or commentary, does not constitute legal advice and if you have a legal dispute you should seek advice from a solicitor or barrister about your case. Accordingly, no member of Chambers shall be responsible for any action you take or refrain from taking in reliance of anything in this article or case summary.