The government has published the statutory instrument imposing a ban on accountancy and other services. The legislation came into effect from midnight on the 21 July 2022.
The Statutory Instrument amends The Russia (Sanctions) (EU Exit) Regulations 2019 by introducing Regulation 54C, which provides that:
(1) A person must not directly or indirectly provide, to a person connected with Russia:
- accounting services;
- business and management consulting services; or
- public relations services.
The government has also updated its Guidance. The Guidance states that the definition of accounting services is based on the Provisional Central Product Classification (CPC) Codes 1991 and includes CPC 86212 Accounting Review Services, CPC 86213 Compilation of Financial Statements services, CPC 86219 Other Accounting Services and CPC 86220 Bookkeeping Services, except tax returns.
The definitions of business and management consulting and public relations services are based on Extended Balance of Payments Services classification (EBOPS) 2010 and includes EBOPS 10.2.1.3 - Business and management consulting and public relations services includes advisory, guidance and operational assistance services provided to businesses for business policy and strategy, and the overall planning, structuring and control of an organisation.
Below, we have set out the definitions within the CPC Codes to help firms identify those services that are banned. Where the code is not specified in the guidance, firms may consider that the service is not prohibited, although the legislation does not specifically confirm this exclusion and firms should obtain legal advice in cases where it is unclear if a service is included or excluded.
The classifications are comprehensive but there are precise categories which do not appear to overlap. This would mean that in general, tax services and statutory audit services are not prohibited but that a much wider range of business services than expected will be prohibited. Firms should consider seeking confirmation either through legal advice or by contacting BEIS.
Who does this apply to?
The prohibition on public relations services is not covered by this note.
The prohibitions and requirements imposed by the Regulations apply within the territory of the United Kingdom (UK) (including Northern Ireland) and in relation to the conduct of all UK persons wherever they are in the world. UK persons includes British nationals, as well as all bodies incorporated or constituted under the law of any part of the UK. Accordingly, the prohibitions and requirements imposed by the Regulations apply to all companies established in any part of the UK, and they also apply to branches of UK companies operating overseas. Consequently, the ban affects any firm providing these services and not just those traditionally considered as an ‘accountancy firm.’
Accounting Services that are prohibited
CPC Provisional version - English (dgft.gov.in) CPC codes 86212, 86213,86219, 86220
Accounting review services - 86212
Reviewing services of annual and interim financial statements and other accounting information. The scope of a review is less than that of an audit and therefore the level of assurance provided is lower.
Compilation of financial statements services - 86213
Compilation services of financial statements from information provided by the client. No assurances regarding the accuracy of the resulting statements are provided.
Preparation services of business tax returns, when provided as a bundle with the preparation of financial statements for a single fee, are classified here.
Exclusion: Business tax preparation services, when provided as separate services, are classified in subclass 86302 (see below)
Other accounting services -86219
Other accounting services such as attestations, valuations, preparation services of pro forma statements, etc.
Bookkeeping services, except tax returns 86220
Bookkeeping services consisting in classifying and recording business transactions in terms of money or some unit of measurement in the books of account. Exclusion: Bookkeeping services related to tax returns are classified in subclass 86302 (Business tax preparation and review services).
Accounting Services that are not specified in the guidance as prohibited
There are certain sub-categories of accounting services within the CPC code that are not listed within the statutory guidance. Firms may consider that this means that these services are not prohibited but should consider obtaining legal advice.
CPC Provisional version - English (dgft.gov.in) CPC Code 86211 86301 86302 86303 86309
Financial auditing services 86211
Examination services of the accounting records and other supporting evidence of an organization for the purpose of expressing an opinion as to whether financial statements of the organization present fairly its position as at a given date and the results of its operations for the period ended on that date in accordance with generally accepted accounting principles.
Business tax planning and consulting services 86301
Advisory services to enterprises on how to arrange their affairs, with a view to minimizing the impact of income taxation on their profits by taking advantage of all allowances and benefits that the law provides. Exclusion: Similar advisory services but including preparation or review services of various returns and reports for the client are classified in subclass
Business tax preparation and review services 86302
Services consisting in preparing or reviewing, for enterprises, various returns and reports required for compliance with the income tax laws and regulations and defending them if contested by the tax authorities. This may also include tax planning and control. Exclusion: Advisory services on tax planning not including preparation or review services of returns and reports are classified in subclass/86301 (Business tax planning and consulting services).
Individual tax preparation and planning services 86303
Services consisting in advising individuals on the means to minimize the impact of income tax on their revenues by taking advantage of all allowances and benefits that the law provides and/or preparing the returns and reports required for compliance with tax laws and regulations.
Other tax related services 86309
Services consisting in assisting enterprises in tax planning and control other than income tax and preparing all documentation required by law.
Business and management consulting services
The ban on business and management consulting services covers a wide range of services. These are advisory, guidance and operational assistance services provided for:
- Business policy and strategy; and
- The overall planning, structuring and control of an organisation
This includes, but is not limited to:
- Management auditing
- Market management
- Human resources
- Production management
- Project management consulting
The guidance refers to the EBOPS 10.2.1.3. This document refers across to specific CPC classifications. CPC 8311 has eight separate sub-categories which are extremely broad ranging. Access them here. These are extremely broad ranging.
Notable inclusions are
- advisory services relating mergers and acquisitions, turnaround plans, and joint ventures (83111);
- working capital and liquidity management; analysis of capital investment proposals; development of accounting systems, budgeting and budgetary controls (83112);
- HR consulting which includes recruitment, training and compliance with government regulations (83113) marketing consultancy (83114);
- a wide range of operational management consulting (which is far wider than the accountancy sector as it includes plant safety and services provided by agronomists) (83115);
- supply chain management consultancy services including services advising on distribution, storage and logistics (83116);
- services relating to business processes including payroll processing and benefits processing as well processes relating to the supply chain (eg, inventory management and procurement) and those relating customers, including for example, call centres and help desks (83117);
- and Head Office services - which relates to intra-group strategic management services (83118).
The category 8312 relates to PR and regional, industrial or tourism development and is not considered further.
CPC 8319 has only one sub-category (83190) project management activity this includes co-ordination, budgeting and cost control, management and office management services, whether or not with the provision of staff and so covers all typical project management activities.
What about possible circumventions? Regulation - 19(1)
A person must not intentionally participate in activities knowing that the object or effect of them is (whether directly or indirectly)
- to circumvent any of the prohibitions or
- to enable or facilitate the contravention of any such prohibition.
A person who contravenes the prohibition above commits an offence.
Person connected with Russia
Regulation 21(2) provides that ‘A person connected with Russia’ means:
- an individual who is, or an association or combination of individuals who are, ordinarily resident in Russia;
- an individual who is, or an association or combination of individuals who are, located in Russia;
- a person, other than an individual, who is incorporated or constituted under the law of Russia;
- a person, other than an individual, who is domiciled in Russia.
Consequently, the ban does not include Russian citizens, unless they are ordinarily resident or domiciled in Russia.
Licences may be issued for certain trade activities that would otherwise be prohibited by the Regulations. The Department for International Trade (DIT) has overall responsibility for trade sanctions licensing. The Secretary of State for International Trade is ultimately responsible for decisions to grant or refuse a trade sanctions licence in any individual case.
The guidance state that a license may be granted for the provision of professional and business services:
- for the delivery of humanitarian assistance activity.
- for the production or distribution of food provided that this is for the benefit of the civilian population.
- for civil society activities that directly promote democracy, human rights or the rule of law in Russia.
- for services required by non-Russian business customers in order to divest from Russia, or to wind down other business operations in Russia.
- for services to a person connected with Russia by a UK parent company or UK subsidiary of that parent company.
For accountancy, business and management consultancy and PR services, if you discover that you have breached any of the trade prohibitions or licensing provisions, you should voluntarily disclose the irregularity by reporting it to BEIS.
Exceptions and notifications
Regulation 60DA provides for exceptions in cases where the covered services are:
- Supplied in order to comply with UK statutory or regulatory obligations, apart from contractual obligations; or
- Necessary for the official purposes of a diplomatic mission or consular post to Russia, or of certain kinds of international organisations.