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PCRT: an ethical reference point

Author: ICAEW

Published: 24 Jun 2021

Professional Conduct in Relation to Taxation (PCRT) lies at the heart of ensuring that firms dealing with tax matters work professionally and ethically. But ICAEW’s Practice Assurance (PA) monitoring reviews in 2020 showed that while compliance is high, a surprising number of firms have not read PCRT guidance.

PCRT, which applies to all tax work performed by members, sets out fundamental principles and standards for tax planning. It is a living, digital document that describes the standards of behaviour clients can expect when seeking advice on their tax affairs. It has been around for more than 20 years, and is regularly updated to reflect the changing tax landscape, most notably in 2017 when the Standards for Tax Planning were introduced to address public and government concerns about aggressive tax avoidance.

The guidance has been developed jointly by seven professional bodies and associations across the sector. “The idea is to make the standards that professional tax advisers should be working to both consistent and clear,” explains Angela Freeman, Manager, Professional Standards, Quality Assurance, ICAEW.

For firms who are members of PCRT bodies and advising on UK tax matters, compliance is mandatory. “The standards are based on good practice, and good ethical practice,” says Freeman. “As an institute, we have our Code of Ethics that we expect our firms to comply with, and PCRT applies the fundamental principles of the Code of Ethics in a tax context, for example acting with integrity, making sure you are competent to do the work, and confidentiality.”

PCRT also adds another layer to this with its specific focus on the relationship between tax advisers, their clients and HMRC. “It helps guide that relationship,” says Freeman, “and can be useful for firms to go back to if they encounter tricky situations, as a reminder of what they should do.”

PCRT in practice

ICAEW member firms generally use PCRT to:

  • provide a reference point for professional standards to support informed choices
  • demonstrate to their clients the standards required and how they meet them
  • explain to clients why they cannot carry out some tax planning arrangements
  • support colleagues and fellow professionals in making the right decisions
  • demonstrate their own commitment to ethical practice

Many firms also develop internal policies, manuals and codes of conduct to support PCRT and reflect the wider regulatory environment in which they work.

“It gives us a mandatory rulebook and some clear guidance as to the quality standards we need to adhere to,” says Praveen Gupta, National Head of Tax at Azets. “It’s also standardised across the profession, which gives us, as tax advisers – regardless of where we are in our careers or where we work – a common reference point.”

“In itself, it’s not a very long document,” he adds. “But it does contain key practical steps. So within our firm it’s referenced in our tax manual, which is our internal rulebook. Then PCRT itself acts as the external rule book. We go back to it when there’s a need – so if something happens with a particular client, we look to the tax manual first, followed by the PCRT if necessary.”

Ingraining PCRT

Gupta highlights the importance of embedding the standards across a firm and ensuring people understand the principles from the outset. Leadership and engagement is crucial. “The way we cascade messages down is through the regional tax leaders,” he explains. “So we’ve got local leadership.”

When anyone joins the tax team, the tax manual, which includes the PCRT standards, is part of their induction process. Azets also has a tax risk committee consisting of senior tax partners. Most recently, the firm has started producing risk and quality webinars that are mandatory-watches for all staff who deal with tax work, across all departments.

“On top of other compliance webinars, if someone works in tax they must view the risk and quality webinars,” Gupta explains. In the latest one, there is a section on PCRT and another on the internal tax manual. “It’s a constant reminder that you’ve got to ensure you’re aware of PCRT and where you can find it if you need it.”

Read it

ICAEW’s 2020 PA monitoring visits specifically focused on how firms are incorporating PCRT into their processes and procedures. The results were encouraging and revealed a high level of compliance.

All the participating firms consider, at engagement, whether they have the competence to carry out the required work; and 96% tailor their engagement letter to ensure it sets out the scope of tax planning and compliance services. Nine in ten only allow tax planning advice to be provided by authorised individuals, and 98% ensure that principals and staff receive tax training suitable for the work they do.

But the monitoring visits also revealed that only 82% firms could confirm they had read the PCRT guidance. Freeman acknowledges that this was surprising. Some even asked: “What is that?” In most cases, however, these firms still had the necessary procedures in place.

“When we started to discuss it with them, they said: ‘Oh yes, we do that,’” says Freeman. “So, because it’s based on good ethical standards, even if they hadn’t read every single bit of it, they usually had procedures that were dealing with it.”

“But if you haven’t read it; do read it,” she urges. “Someone in general practice, for example, might assume the document only applies to complex tax planning and doesn’t apply to them,” she adds. “But it does actually apply to everyone, even if they’re only slightly involved in tax.” 

“As part of our work to make PCRT clearer and more accessible, we have restructured the content so the Fundamental Principles and Standards are now in a 12-page document, supported by individual helpsheets,” says Sophie Wales, ICAEW’s Head of Ethics. “This means the guidance can be used as a quick reference guide, with further reading available in the helpsheets on any specific topic where you may want to know more.”

Monitor and document

The PA monitoring visits also raised some concerns about monitoring and documentation. Only 69% of the firms had a formal mechanism for monitoring compliance with PCRT and their own related procedures for adhering to the principles and standards.

Freeman emphasises that PCRT is deliberately principles-based, and not prescriptive, which means it can accommodate all types of firm, from the Big Four to a sole practitioner. And monitoring practices will always vary, according to the size and type of firm.

Very large firms will have set procedures and checklists for independent annual reviews, including whether work complied with PCRT. In smaller firms, reviews may be less formal and be carried out as the work is being done, rather than in a more structured way.

“While the degree of formal monitoring does tend to vary, the idea behind it is to make sure that everything has been picked up,” says Freeman. So it is important to develop ways of reviewing, not only work for clients but also internal compliance procedures, and to be able to demonstrate that you are doing that.

At Azets, Gupta explains, whenever staff are working on a tax project, it goes through a review process, which includes a tax advisory checklist that covers everything from making sure tax planning is relevant to a client’s situation to ensure that it is within the spirit of tax law. “As tax partners, we’re making sure we meet regularly to discuss where HMRC’s boundaries are in terms of the projects we work on,” he says.

Freeman also highlights the importance of diligently documenting advice given to clients. “Some firms, particularly smaller firms, maybe don’t always document the advice they’ve given, which can then cause problems later on,” she says. “PCRT does make it clear that they should be keeping notes on a timely basis to explain the rationale behind the advice they’ve given.” 

No complacency

“What came out of our discussions with firms about PCRT last year is that the ones we spoke to were compliant and were taking it seriously,” concludes Freeman. But while many of the principles and standards are clearly well ingrained – part of the DNA of the profession – this doesn’t mean there is any room for complacency.

“It says in the foreword to the document that if concerns are raised about members, we will take account of these principles and standards when deciding whether or not to take action, and a failure to comply with PCRT could put your firm at risk,” says Freeman.


Five tips to improve compliance

  1. Ensure that all principals and staff involved in tax work have read the PCRT guidance, understand its contents, and can access it easily
  2. Review your internal manuals and procedures for tax work to ensure they comply with the guidance
  3. Think about what action you would take if things go wrong and incorporate this into your procedures
  4. Provide regular ethics training to tax staff, bringing in the PCRT principles and standards
  5. Carry out periodic cold file reviews of tax work to ensure staff are following your procedures and PCRT guidance

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