ACCA Advanced Taxation (ATX) Practice Exam

What action must be taken if the client refuses to notify HMRC regarding an error in their payment?

1. Continue acting for the client

2. Advise the client on possible legal consequences

3. Cease acting for the client

4. Report the client to HMRC

The correct answer is: Cease acting for the client

In situations where a client refuses to notify HMRC about an error in their payment, the most appropriate action is to cease acting for the client. This aligns with the ethical responsibilities and professional standards of tax practitioners. When a client is unwilling to comply with legal requirements, such as notifying HMRC of errors, it poses a significant risk not just for the client, but also for the practitioner. Continuing to act for a client who is taking a position that may contravene tax laws can compromise the practitioner’s integrity and expose them to potential disciplinary actions or legal issues. Tax professionals have a duty to encourage compliance with laws and regulations. If a client persists in ignoring these obligations, the only responsible course of action is to withdraw from the engagement. While advising the client on the possible legal consequences of their decision or reporting them to HMRC might seem like viable courses of action, they may not adequately uphold the tax advisor's position in terms of ethical practice. Reporting could also lead to complications in the client-advisor relationship and may not be legally obligatory unless there is clear evidence of tax evasion or fraud, whereas ceasing to act definitively removes the practitioner from a potentially harmful situation.