Ethical and professional issues arising from the giving of tax planning advice: formula sheet

Key formulas

Evasion test

Evasion = deliberate dishonesty + illegal reduction of tax

Concealing income, false claims or false documents. Always unlawful and potentially criminal.

Mitigation test

Mitigation = relief used as intended + genuine substance

Real transactions, commercial or personal reasons, no abuse of the purpose of the law.

Avoidance test

Avoidance = legal wording met + purpose defeated + artificial steps

Not a crime in itself, but open to challenge by HMRC under case law and the GAAR.

Ramsay principle

Look at the whole composite transaction; ignore steps with no commercial purpose other than tax saving

Courts apply the statute to the real transaction. It is a rule of statutory interpretation, not a separate tax.

Adviser's position

Advise on legal planning; refuse to assist with evasion; warn on aggressive avoidance

Linked to integrity, professional behaviour and PCRT standards.

Five fundamental principles

Integrity | Objectivity | Professional competence and due care | Confidentiality | Professional behaviour

Learn them as a list. Always name the principle that is affected in your answer.

Five categories of threat

Self-interest | Self-review | Advocacy | Familiarity | Intimidation

Pick the one that fits the scenario and say why. Do not list all five without applying them.

Threats and safeguards approach

Identify threat → Evaluate significance → Address it: eliminate the circumstances, apply safeguards, or decline or end the engagement

Use this as the structure of every ethics answer. Safeguards are only one way to address a threat.

Evasion versus avoidance

Evasion = illegal, deliberate non-disclosure or misstatement | Avoidance = legal use of the rules to reduce tax

You can advise on avoidance within the law. You must never assist with evasion.

Fundamental principles

Integrity | Objectivity | Professional competence and due care | Confidentiality | Professional behaviour

Name the principle that is threatened, then link it to the facts.

Acceptable tax planning

Lawful + follows the intention of Parliament + client informed of risks = acceptable planning

Artificial, abusive or concealed arrangements fall outside this.

Tax evasion

Deliberate dishonest non-disclosure or misstatement to HMRC = illegal

You must not assist. Avoidance is lawful but may be challenged; evasion is criminal.

Disclosure rule

Confidentiality applies unless: client consent, legal duty, or professional right or duty to disclose

Do not state that you may report simply because you disagree with the client.

Error response

Tell client → advise to disclose to HMRC → if refused, consider ceasing to act

Do not continue as if nothing has happened.

General rule

No disclosure without proper and specific authority, unless a legal or professional right or duty applies

Confidentiality also covers using information for personal gain or for third parties.

Permitted or required disclosure

Client permission OR legal requirement OR professional right or duty (not prohibited by law)

Always check which of the three applies. Name it in your answer.

Money laundering reporting route

Staff member → MLRO → NCA (Suspicious Activity Report)

Report internally to the MLRO. Do not report directly to HMRC.

Tipping off

Do not alert the client if it could prejudice an investigation

This is a criminal offence and a classic trap in scenarios.

Client will not correct an error

Advise client → ask them to disclose → if refused, cease to act → consider reporting

You cannot tell HMRC about the error without authority or a legal duty.

Error found in a return

Tell client → urge correction → client corrects, or you must not act on the matter and should consider whether to cease acting altogether

You need the client's permission before telling HMRC, unless the law requires disclosure. Whatever the client decides, still consider a report to the MLRO.

Confidentiality override

Disclosure is allowed only with client consent, or where the law requires it, or where professional duty or right allows it

Money laundering reporting is a legal duty that overrides confidentiality.

Suspected evasion or money laundering

Report internally to the MLRO → MLRO decides on report to the NCA → do not tip off

Tipping off is an offence. Do not warn the client about the report.

Professional clearance

New adviser should ask client's permission → writes to existing adviser → existing adviser should reply once the client consents

Clearance is a professional requirement and safeguard under PCRT, not a legal bar to acting. If the client refuses permission, decline the appointment unless there are good reasons not to.

Avoidance versus evasion

Avoidance = legal planning within the law's intent; evasion = illegal, deliberate misstatement or concealment

Evasion is a criminal matter. Unintended error is neither, but must still be corrected.

Quick revision

• Tax avoidance is legal use of rules, but it can be challenged if it is abusive; tax evasion is illegal and involves dishonesty.
• Tax mitigation means using reliefs and allowances as Parliament intended.
• The fundamental principles are integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour.
• You must not be associated with returns or advice you know to be misleading.
• Confidentiality is the default, but disclosure may be allowed or required by law, or with client consent.
• If you find a client error, tell the client promptly and explain how to correct it.
• You cannot correct the error with HMRC without the client's permission.
• If the client refuses to correct a material error, you should consider ceasing to act.
• When ceasing to act, think about your duties to the client, the successor adviser and any reporting obligations.
• GAAR targets abusive tax arrangements and can counteract the tax advantage.
• DOTAS requires disclosure of certain notifiable arrangements to HMRC.
• In ethics answers, always link the rule to the facts and end with a clear recommendation.

Common mistakes

• Saying avoidance is illegal. Fix: State that avoidance is not itself a crime but can be defeated by HMRC and may carry penalties or lost tax advantage. Only evasion is criminal.
• Treating all tax planning as unethical. Fix: Explain that using ISAs, pensions or reliefs as intended is acceptable mitigation and advisers have a duty to advise clients on it.
• Listing the five principles with textbook definitions and no application. Fix: Spend your words on the scenario. Name the principle in a short phrase, then link it directly to the facts.
• Saying you must always report a client to HMRC. Fix: Confidentiality is the starting point. You must urge the client to correct the error, and if they refuse you should consider ceasing to act. Confidentiality may be overridden only where there is a legal duty (such as money laundering reporting), a legal or professional right or duty to disclose, or authority from the client. The exception most likely to be tested is money laundering. If you know or suspect that someone is dealing with criminal property, for example because tax has been evaded and the unpaid tax is criminal property, you report internally to the money laundering reporting officer (MLRO). The MLRO decides whether to make a report to the National Crime Agency (NCA), not to HMRC. The client's consent is not needed for this report, and you must not tip off the client. If the firm wants to carry on acting after a report, the MLRO may need to seek NCA consent (a defence against money laundering) first. Ceasing to act must also be handled so that it does not tip off the client.
• Treating all tax planning as unethical Fix: Say that lawful planning within the intention of Parliament is acceptable. Only evasion and abusive arrangements are not.
• Confusing tax avoidance with tax evasion Fix: Define each in one line: evasion is illegal and dishonest; avoidance is lawful use of the rules, though it can be challenged.
• Saying you should tell HMRC about the client's error. Fix: State that you need client permission or a legal duty. Otherwise you must ask the client to disclose, and cease to act if they refuse.
• Reporting suspicion directly to the NCA or HMRC. Fix: Report to the MLRO, who decides whether to submit a Suspicious Activity Report. A sole practitioner is their own MLRO.
• Saying the adviser must report the error straight to HMRC. Fix: Say you need the client's permission. Disclose without it only where the law requires, such as money laundering rules.
• Saying the adviser can carry on acting and just ignore the error, or can keep the client once they have refused to correct it. Fix: State that you must not act in connection with the incorrect return or matter, and that you should consider whether to cease acting for the client altogether. Add that you should not continue with the client without considering the money laundering consequences.

Exam tips

• Always state the label (evasion, avoidance or mitigation) and then justify it with facts from the scenario.
• Remember the key difference: evasion is illegal and dishonest; avoidance is legal in form but may fail; mitigation uses reliefs as intended.
• Mention Ramsay and the GAAR when a scheme has artificial steps with no commercial purpose.
• Include the adviser's duties and a recommendation. Professional skills marks reward a clear, balanced and well-structured answer.
• If asked for a letter or memo, use the right format, a suitable tone for the reader and short, plain explanations.
• Ethics in ATX Section A carries 5 marks and is short and predictable. Practise a three-part answer: principle, threat, action. Be ready for ethical issues in Section B questions too.
• Always tie each point to a fact in the scenario. General statements of the code earn little.
• If the client refuses to correct an error, the answer is to cease to act, not to ignore it. Mention confidentiality and the money laundering angle where unpaid tax is involved.