On first of June, Professional Conduct in Relation to Taxation (PCRT) professional bodies published ‘Topical Guidance covering the application of professional standards to the provision of R&D tax credit services’. This is welcomed by genuine professionals in the industry, as it provides clear answers to several key questions.
There is no specific set of regulations governing the R&D tax advice sector. We all know the horror stories of unprincipled or unqualified companies that leave their clients in a mess, with no consequences to face. The new guidance addresses some of these issues directly, which leaves everybody clear about professional conduct expectations.
We are really pleased about this because it should help taxpayers make good choices about who they employ to help them make R&D tax credit claims.
What is the Professional Conduct in Relation to Taxation (PCRT)?
The PCRT organisation sets out and upholds the ‘Fundamental Principles and Standards of Tax planning behaviours’.
There are five fundamental principles:
- Professional competence and due care
- Professional behaviour
And five standards for tax planning:
- Client specific
- Disclosure and transparency
- Tax planning arrangements
- Professional judgement and appropriate documentation
The other accountancy industry professional bodies work within these principles and standards, as well as the nuances of their own codes of conduct, these are:
- Association of Accounting Technicians (AAT)
- Association of Chartered Certified Accountants (ACCA)
- Association of Taxation Technicians (ATT)
- Chartered Institute of Taxation (CIOT)
- Institute of Chartered Accountants in England and Wales (ICAEW),
- Institute of Chartered Accountants of Scotland (ICAS)
- Society of Trust and Estate Practitioners (STEP)
HMRC also incorporates PCRT standards in their guidance for tax advisers.
Who is the PCRT for?
Interestingly, in the very first point of their introduction, the PCRT states: “The purpose of Professional Conduct in Relation to Taxation (PCRT) is to assist and advise members on their professional conduct in relation to taxation, and particularly in the tripartite relationship between a member, client and HMRC.”
It is the mention of the client that really caught our attention. It’s not just about the professionals or government departments. The PCRT has you, our clients, as part of its raison d’etre.
All members of the listed professional bodies, their affiliates and students are bound by the PCRT principles and standards – as you would expect. They are also accountable to the regulations of their particular professional bodies.
But no one expects low quality or outright criminal R&D tax relief companies to be paying for professional body memberships – which is part of the problem. What’s great about PCRT is that it “applies to all members providing advice on UK tax matters regardless of, contracts of employment, membership of other professional organisations or where in the world they work and reside.” They cannot avoid PCRT and breaking this code can be used as evidence against them.
Why does there need to be specific PCRT guidance for R&D tax relief companies?
There has been an identifiable need to tackle specific questions relating to unsavoury behaviour within our industry. This new guidance gives clear answers to 13 questions. We’re only going to highlight three of them here, as some of the other points are more relevant to us as tax professionals. (Numbers are where the question sits within the new guidance.)
Q4. What are we allowed to state on our website in relation to the services we provide on R&D claims?
The false or misleading advertising done by some firms is appalling. The fact that there is no official regulator of R&D tax relief provision has left it to legitimate companies to call it out. The PCRT gives “HMRC approved methodology” as an example.
Their answer is short and to the point. Existing PCRT guidance says: “a member should ensure that their internal and external communications including those using social media are consistent with the principles in this guidance”(paragraph 2.27). “Misleading or inaccurate claims should not be included on websites,” is added within this specific additional guidance.
Q3. We come across firms who do not consider that R&D advisers need to be registered for AML Supervision. Is this correct?
Anti Money Laundering legislation means that companies have a set of obligations to fulfill, like properly checking your identity documentation before starting any work. The answer to this question gets a bit wordy. Basically, any R&D tax credit claim advice is considered to be official “advice in the area of taxation”. This means that it is definitely subject to Anti Money Laundering laws.
In other words, companies cannot redefine themselves to avoid these regulations. If you’re talking to them about your R&D tax credit claim, they’re giving tax advice and need to follow AML protocol.
Q5. Can all accountancy and tax adviser firms provide R&D tax advice? What are the requirements?
Current PCRT answer is: “A member must carry out their work with a proper regard for the technical and professional standards expected” and “must not undertake professional work which they are not competent to perform unless they obtain appropriate assistance from a suitably qualified specialist.”
If you don’t know the R&D tax relief regulations inside out, you shouldn’t be working on anyone’s claim. Seems obvious, doesn’t it. But companies out to make a quick buck don’t have professionalism as their first priority.
The PCRT new guidance specifies a whole list of things that will go wrong, if an R&D tax credit company don’t know what they’re doing, including:
- Not assessing the businesses’ eligibility for R&D tax relief properly. For example, not choosing the correct tax relief scheme for the company’s size – SME R&D Tax Credit Scheme or RDEC for large companies.
- Including R&D activities that are not eligible for R&D tax relief, either deliberately to increase the claim amount or through ignorance.
- Factoring costs into the claim that are not allowable under the scheme.
- Not including all the necessary supporting documentation.
- Failing to inform clients of all the possible consequences of their claim.
This is by no means the full list of potential disasters that an unqualified person could inflict on their unsuspecting client. And all the consequences fall on you, the business owner. Whether you’ve sought advice from the wrong person or not. You’ll have to pay a real professional to sort out the mess, you’ll have to pay any fines and you’ll have to endure an HMRC investigation.
It is great that the PCRT now contains specific references to R&D tax credit advisers. It protects you, provides some recourse for wrongdoing and raises the level of the whole industry.