The most commonly met threat to compliance with the main principles is the conflict of interest. The safeguards for this conflict avoidance along with an example will be a part of discussion in this blog. The second part of the discussion includes the prospective clients and the general anti-abuse rule (GAAR).
Some reasonable steps should be taken by the member (such as a company employee or an employer) in order to identify the scenarios that could result in the conflict of interest. These may lead to threats of compliance with the main principles.
A conflict can occur between the client and the UK company incorporation or between two clients who are conflicting, under the management of the same firm, such as a firm that acts for both a husband and a wife in the settlement of divorce or acts for a UK company incorporation and the directors of the company in their personal capacity.
The consideration as to whether the member has any interests of business after business registration UK or relationships with a client or third party that could lead to threats, is included in the process of evaluation. The safeguards should be taken into account and must be applied when required.
The member in public practice should be ordinarily included in the safeguards depending upon the scenarios that result in a conflict. These safeguards include:
In every case, the member must acquire the consent of the relevant parties that are to act. When a member has made the request for consent from a client to take an action for some other party (that may or may not be an existing client) and that consent gets rejected, then he should not proceed with the action for one of the parties in the matter that leads to the conflict of interest.
There are some additional safeguards that should be taken into consideration as well. These include:
In the case where there is a threat to one or more of the fundamental principles because of the conflict of interests, and these principles cannot be reduced to an acceptable level or eliminated through the safeguards’ application, it should be concluded by the member that the acceptance of a specific engagement is not appropriate or that resignation is required from one or more conflicting engagements.
Let’s consider an example, suppose that you have acted for Robenick which is a register ltd company UK for quite some years and have also acted for three director shareholders, Rob, Ben and Nick. During the year 2013, Rob gets into a disagreement with Ben and Nick, as directed by the company. Now what are you supposed to do?
When you started acting both for the company and for Rob, Ben and Nick, you should have given an advice to each of them that you were acting for others, and acquired their permission for acting. Under the condition that there were no areas where there was a conflict between the interests of clients, there does not exist any reason that you should have not acted for all of the clients, despite the fact that it may be advisable to have made sure that, for example, a different manager of tax had the responsibility of each client. However, now that a disagreement has occurred between Rob and other clients, there has been a change in the situation and there is a conflict of interest. It is most probably not appropriate to continue acting for all the clients, and it will be required by you to stop acting, either for Rob, or Nick, or Ben and this register ltd company UK.
Acceptance of Prospective Clients and Changes in Professional Appointment
When the clients invite members to act as tax advisers, they should contact the present tax advisers to know if they need to be aware of any matters before taking the decision of accepting the appointment.
Members should take into consideration the fact that whether the acceptance to the client or the specific engagement would lead to any threats to compliance with the main principles before the acceptance of a new client.
The integrity or the professional behavior may have to face some threats, such as questionable issues associated with the client, or a threat to the professional competence and due care may be formed if the team of engagement does not possess the required skills for carrying out the engagement. Where the implementation of safeguards is not possible, in order to lessen the threats to a reasonable level, members must refuse to enter into the relationship. There are also some procedures of client identification to be followed.
The members who are asked for the replacement of another accountant should make sure if there aren’t any professional or other reasons for rejecting the engagement. This may need the direct communication with the present accountant to establish the facts and the scenarios behind the suggested change so that the members can make a decision whether it is necessary to approve of the acceptance of engagement.
It is merely not a matter of professional courtesy to communicate with the present accountant. Its sole purpose is to enable the members to make sure that the client has taken no action which would preclude the members from accepting the appointment on ethical grounds and that, after the consideration of all the facts, the client is a person for whom members would like to act. Hence, the member should always communicate with the present accountant when asked for the acceptance of appointment for any recurring work.
The present accountant is bound because of the confidentiality. This means that the nature of engagement and the acquiring of client’s permission altogether get to decide the extent to which the affairs of a client may be discussed with the prospective accountant. If the permission is not granted by the client, the present accountant should inform the prospective accountant, who must then inform the client that he is not able to accept the appointment.
If, despite the permission of the client, the present accountant does not succeed in communicate with the prospective accountant, then it is needed by the prospective accountant to make other enquiries to make sure that no reasons exist for the rejection of the appointment. This could be done through the communications with banks or similar third parties.
In the case where the member is the present accountant, then subject to acquiring the permission of client, he should conceal all the information asked for, without any delay.
As an example, consider that you have acted for Mr. X, but then got to know that a serious irregularity of tax has been occurred which Mr. X has not accepted to make correction of, and you have given an advice to Mr. X that you cannot act for him any longer. Now you get a letter from another ACCA member suggesting you that he has been asked to act for Mr. X. Mr. X has not allowed you to divulge any information about him. Now what are you supposed to do?
You should suggest the new client that you do not have the permission from Mr. X to divulge any information. Then the new accountant must refuse to act for the Mr. X.
In the case where you are performing the work of tax compliance such as preparing and submitting the returns of tax, you will then be acting as agent to the client. This means that the client is responsible for all the information that is provided in return.
However, when you provide for the advice of tax planning, you will then be acting as principal which means that you hold complete responsibility for the advice you give.
At the very least, any recommendation given by you should be legal. Most of the people have an understanding of the basic difference between the avoidance of tax (mitigation of tax through legal means) and evasion of tax (illegal, such as fraud). Besides the specific rules related to disclosure of schemes of avoidance, you should have an understanding that the payer of tax is responsible for the preparation of return of tax that is correct, complete and an accurate disclosure of facts will be included in this. However, it does not mean that you may not give a suggestion of a course of action where the HM Revenue and Customs is not in agreement with your conclusion as to the consequences of tax. There is an explanation required by you that tells the client that he should provide full details to let HMRC consider the matter, and you should give him a warning that any negotiations with the HMRC will be both time consuming and liable to charge or expense.
You should ensure that you know the limits of time to make any claims. If the limit is missed by you, it will result in the denial of the relief. If the returns are made late, then penalties have to be paid for and the late payment of tax results in the charge of an interest.
There is a general anti-abuse rule in order to let the HMRC perform the counteraction of advantages of tax gained from the abusive tax arrangements.
An additional means is provided to the HMRC in order to counteract advantages of tax occurring from the abusive arrangements of tax, through the GAAR.
The arrangements of tax are arrangements with the general aim of acquiring an advantage of tax.
Arrangements are considered to be abusive if they cannot be considered as a suitable course of action, such as the case where they result in unintended results including one or more contrived or abnormal steps and exploit any shortfalls in the provisions of tax.
The abusive arrangements result in:
The following points are included in the advantage of tax:
HMRC may perform the counteraction of advantages of tax occurring by, for example, an increment in the tax liability of the taxpayer.
HMRC should follow certain requirements of procedure and if it makes any adjustments, then these should be on a just and reasonable basis.