Page 1 of 60
ICAEW BUSINESS PLANNING TEST WITH VERIFIED ANSWERS
DETAILED RATIONALES GRADED A+
ICAEW Business Planning: Taxation 2026
Section 1: Ethics and Law (Questions 1-25)
1. A tax adviser is considering a client's proposed tax planning scheme that
involves creating an offshore trust. Under the ICAEW Code of Ethics, which
fundamental principle requires the adviser to be straightforward and honest in all
professional and business relationships?
A. Integrity
B. Objectivity
C. Professional Competence and Due Care
D. Confidentiality
Rationale: The fundamental principle of Integrity requires members to be
straightforward and honest in all professional and business relationships. This applies to
all advice given, including tax planning.
2. A tax adviser discovers that a client has deliberately understated their income
on a tax return. Under the Professional Conduct in Relation to Taxation (PCRT),
what is the adviser's primary obligation?
A. To immediately resign from the engagement
B. To advise the client to disclose the error to HMRC
C. To report the client directly to HMRC without informing them
D. To ignore the error as it is the client's responsibility
Rationale: Under PCRT, the adviser must advise the client to disclose the error to HMRC
and must not act on behalf of the client if they refuse to correct the error.
3. A tax adviser is asked to provide advice on a transaction that is legal but has no
commercial purpose other than obtaining a tax advantage. Under the General
Anti-Abuse Rule (GAAR), what should the adviser consider?
1|Page
,Page 2 of 60
A. Whether the transaction is on HMRC's list of known avoidance schemes
B. Whether the transaction is a reasonable course of action considering all
circumstances
C. Whether the transaction has been approved by a tax counsel
D. Whether the client is willing to accept the risk of penalties
Rationale: The GAAR allows HMRC to counteract tax advantages from abusive
arrangements. An arrangement is abusive if it cannot be regarded as a reasonable
course of action in relation to the relevant tax provisions.
4. A tax adviser overhears a conversation in a client's office suggesting that the
client is planning to backdate a contract to obtain a tax advantage. Under
professional scepticism, what should the adviser do?
A. Ignore the conversation as it was not directly addressed to them
B. Confront the client immediately and demand an explanation
C. Consider the implications and make further enquiries before proceeding
D. Report the client to the police
Rationale: Professional scepticism requires the adviser to apply scepticism to the
integrity of information provided, considering its source, and to make appropriate
judgements mindful of potential ethical issues.
5. Under the ICAEW Code of Ethics, which of the following is NOT one of the five
fundamental principles?
A. Integrity
B. Objectivity
C. Profitability
D. Professional Behaviour
Rationale: The five fundamental principles are Integrity, Objectivity, Professional
Competence and Due Care, Confidentiality, and Professional Behaviour. Profitability is
not a fundamental ethical principle.
6. A tax adviser is asked by a client to provide advice on a tax avoidance scheme
that the adviser believes is aggressive but technically legal. What should the
adviser do first?
A. Implement the scheme immediately as the client has requested
B. Advise the client on the risks and consider whether the scheme meets the client's
objectives
C. Refuse to act for the client and terminate the engagement
D. Report the client to HMRC
Rationale: The adviser should advise the client on the risks, including the potential for
HMRC challenge under the GAAR or disclosure of tax avoidance schemes (DOTAS) rules,
and consider whether the scheme is appropriate.
2|Page
,Page 3 of 60
7. Under the Professional Conduct in Relation to Taxation (PCRT), what are the
five standards that professional accountants must observe when advising on tax
planning?
A. Integrity, objectivity, competence, confidentiality, and professional behaviour
B. Client focus, tax efficiency, transparency, disclosure, and legality
C. Professional competence, confidentiality, client best interests, tax minimisation, and
disclosure
D. Integrity, objectivity, professional competence and due care, confidentiality, and
professional behaviour
Rationale: PCRT sets out five standards: Integrity and Objectivity, Professional
Competence and Due Care, Confidentiality, Professional Behaviour, and Compliance
with Laws and Regulations.
8. A tax adviser is asked to advise on a transaction that involves a disclosure of tax
avoidance schemes (DOTAS) notification. What is the adviser's obligation under
DOTAS?
A. To advise the client that the scheme must be disclosed to HMRC
B. To report the scheme to HMRC directly without informing the client
C. To ignore the DOTAS requirements as they only apply to the promoter
D. To advise the client that DOTAS only applies to offshore schemes
Rationale: Under DOTAS, the promoter (or the user if there is no promoter) must notify
HMRC of arrangements that are notifiable. The adviser must ensure the client is aware
of this obligation.
9. A tax adviser is asked to provide advice on a client's tax affairs that involves a
conflict of interest. What should the adviser do?
A. Proceed with the advice as the client has requested it
B. Disclose the conflict of interest and obtain informed consent or decline to act
C. Ignore the conflict as it is not relevant to the tax advice
D. Report the conflict to HMRC
Rationale: Under the ICAEW Code of Ethics, a conflict of interest creates a threat to
objectivity. The adviser should disclose the conflict and obtain informed consent, or
decline to act if the threat cannot be adequately managed.
10. A tax adviser is advising a client on a transaction that involves a payment to an
offshore entity. What anti-money laundering (AML) obligations does the adviser
have?
A. No obligations as the transaction is legal
B. To conduct customer due diligence and report suspicious activity to the National
Crime Agency (NCA)
C. To report the transaction to HMRC only
3|Page
, Page 4 of 60
D. To advise the client to use a different offshore entity
Rationale: Tax advisers are subject to AML regulations and must conduct customer due
diligence and report suspicious activity to the NCA via a Suspicious Activity Report
(SAR).
11. A tax adviser is considering whether to accept a new client who has been
previously investigated by HMRC for tax evasion. What should the adviser do?
A. Accept the client without any further enquiries
B. Conduct enhanced due diligence and consider whether to accept the engagement
C. Refuse to act for the client automatically
D. Report the client to HMRC before accepting the engagement
Rationale: The adviser should conduct enhanced due diligence on high-risk clients and
consider whether the engagement can be accepted in accordance with AML regulations
and ethical requirements.
12. Under the ICAEW Code of Ethics, what does the principle of Professional
Behaviour require?
A. To comply with relevant laws and regulations and avoid any action that discredits the
profession
B. To act in the best interests of the client at all times
C. To maximise the client's tax savings regardless of the law
D. To maintain confidentiality of all client information
Rationale: Professional Behaviour requires members to comply with relevant laws and
regulations and to avoid any action that may discredit the profession.
13. A tax adviser is asked to advise on a scheme that involves transferring assets to
a family member to reduce inheritance tax. What should the adviser consider?
A. Whether the transfer is a gift with reservation of benefit
B. Whether the transfer is caught by the General Anti-Abuse Rule
C. Whether the transfer is a potentially exempt transfer (PET)
D. All of the above
Rationale: The adviser should consider all relevant tax rules, including gifts with
reservation of benefit, the GAAR, and the PET rules, to ensure the advice is technically
correct and not abusive.
14. A tax adviser is asked to provide advice on a client's tax affairs but does not
have the necessary expertise. What should the adviser do?
A. Provide the advice anyway as the client has requested it
B. Decline to act and refer the client to a specialist
C. Research the topic and provide the best advice possible
D. Ask a colleague to provide the advice without disclosing this to the client
4|Page
ICAEW BUSINESS PLANNING TEST WITH VERIFIED ANSWERS
DETAILED RATIONALES GRADED A+
ICAEW Business Planning: Taxation 2026
Section 1: Ethics and Law (Questions 1-25)
1. A tax adviser is considering a client's proposed tax planning scheme that
involves creating an offshore trust. Under the ICAEW Code of Ethics, which
fundamental principle requires the adviser to be straightforward and honest in all
professional and business relationships?
A. Integrity
B. Objectivity
C. Professional Competence and Due Care
D. Confidentiality
Rationale: The fundamental principle of Integrity requires members to be
straightforward and honest in all professional and business relationships. This applies to
all advice given, including tax planning.
2. A tax adviser discovers that a client has deliberately understated their income
on a tax return. Under the Professional Conduct in Relation to Taxation (PCRT),
what is the adviser's primary obligation?
A. To immediately resign from the engagement
B. To advise the client to disclose the error to HMRC
C. To report the client directly to HMRC without informing them
D. To ignore the error as it is the client's responsibility
Rationale: Under PCRT, the adviser must advise the client to disclose the error to HMRC
and must not act on behalf of the client if they refuse to correct the error.
3. A tax adviser is asked to provide advice on a transaction that is legal but has no
commercial purpose other than obtaining a tax advantage. Under the General
Anti-Abuse Rule (GAAR), what should the adviser consider?
1|Page
,Page 2 of 60
A. Whether the transaction is on HMRC's list of known avoidance schemes
B. Whether the transaction is a reasonable course of action considering all
circumstances
C. Whether the transaction has been approved by a tax counsel
D. Whether the client is willing to accept the risk of penalties
Rationale: The GAAR allows HMRC to counteract tax advantages from abusive
arrangements. An arrangement is abusive if it cannot be regarded as a reasonable
course of action in relation to the relevant tax provisions.
4. A tax adviser overhears a conversation in a client's office suggesting that the
client is planning to backdate a contract to obtain a tax advantage. Under
professional scepticism, what should the adviser do?
A. Ignore the conversation as it was not directly addressed to them
B. Confront the client immediately and demand an explanation
C. Consider the implications and make further enquiries before proceeding
D. Report the client to the police
Rationale: Professional scepticism requires the adviser to apply scepticism to the
integrity of information provided, considering its source, and to make appropriate
judgements mindful of potential ethical issues.
5. Under the ICAEW Code of Ethics, which of the following is NOT one of the five
fundamental principles?
A. Integrity
B. Objectivity
C. Profitability
D. Professional Behaviour
Rationale: The five fundamental principles are Integrity, Objectivity, Professional
Competence and Due Care, Confidentiality, and Professional Behaviour. Profitability is
not a fundamental ethical principle.
6. A tax adviser is asked by a client to provide advice on a tax avoidance scheme
that the adviser believes is aggressive but technically legal. What should the
adviser do first?
A. Implement the scheme immediately as the client has requested
B. Advise the client on the risks and consider whether the scheme meets the client's
objectives
C. Refuse to act for the client and terminate the engagement
D. Report the client to HMRC
Rationale: The adviser should advise the client on the risks, including the potential for
HMRC challenge under the GAAR or disclosure of tax avoidance schemes (DOTAS) rules,
and consider whether the scheme is appropriate.
2|Page
,Page 3 of 60
7. Under the Professional Conduct in Relation to Taxation (PCRT), what are the
five standards that professional accountants must observe when advising on tax
planning?
A. Integrity, objectivity, competence, confidentiality, and professional behaviour
B. Client focus, tax efficiency, transparency, disclosure, and legality
C. Professional competence, confidentiality, client best interests, tax minimisation, and
disclosure
D. Integrity, objectivity, professional competence and due care, confidentiality, and
professional behaviour
Rationale: PCRT sets out five standards: Integrity and Objectivity, Professional
Competence and Due Care, Confidentiality, Professional Behaviour, and Compliance
with Laws and Regulations.
8. A tax adviser is asked to advise on a transaction that involves a disclosure of tax
avoidance schemes (DOTAS) notification. What is the adviser's obligation under
DOTAS?
A. To advise the client that the scheme must be disclosed to HMRC
B. To report the scheme to HMRC directly without informing the client
C. To ignore the DOTAS requirements as they only apply to the promoter
D. To advise the client that DOTAS only applies to offshore schemes
Rationale: Under DOTAS, the promoter (or the user if there is no promoter) must notify
HMRC of arrangements that are notifiable. The adviser must ensure the client is aware
of this obligation.
9. A tax adviser is asked to provide advice on a client's tax affairs that involves a
conflict of interest. What should the adviser do?
A. Proceed with the advice as the client has requested it
B. Disclose the conflict of interest and obtain informed consent or decline to act
C. Ignore the conflict as it is not relevant to the tax advice
D. Report the conflict to HMRC
Rationale: Under the ICAEW Code of Ethics, a conflict of interest creates a threat to
objectivity. The adviser should disclose the conflict and obtain informed consent, or
decline to act if the threat cannot be adequately managed.
10. A tax adviser is advising a client on a transaction that involves a payment to an
offshore entity. What anti-money laundering (AML) obligations does the adviser
have?
A. No obligations as the transaction is legal
B. To conduct customer due diligence and report suspicious activity to the National
Crime Agency (NCA)
C. To report the transaction to HMRC only
3|Page
, Page 4 of 60
D. To advise the client to use a different offshore entity
Rationale: Tax advisers are subject to AML regulations and must conduct customer due
diligence and report suspicious activity to the NCA via a Suspicious Activity Report
(SAR).
11. A tax adviser is considering whether to accept a new client who has been
previously investigated by HMRC for tax evasion. What should the adviser do?
A. Accept the client without any further enquiries
B. Conduct enhanced due diligence and consider whether to accept the engagement
C. Refuse to act for the client automatically
D. Report the client to HMRC before accepting the engagement
Rationale: The adviser should conduct enhanced due diligence on high-risk clients and
consider whether the engagement can be accepted in accordance with AML regulations
and ethical requirements.
12. Under the ICAEW Code of Ethics, what does the principle of Professional
Behaviour require?
A. To comply with relevant laws and regulations and avoid any action that discredits the
profession
B. To act in the best interests of the client at all times
C. To maximise the client's tax savings regardless of the law
D. To maintain confidentiality of all client information
Rationale: Professional Behaviour requires members to comply with relevant laws and
regulations and to avoid any action that may discredit the profession.
13. A tax adviser is asked to advise on a scheme that involves transferring assets to
a family member to reduce inheritance tax. What should the adviser consider?
A. Whether the transfer is a gift with reservation of benefit
B. Whether the transfer is caught by the General Anti-Abuse Rule
C. Whether the transfer is a potentially exempt transfer (PET)
D. All of the above
Rationale: The adviser should consider all relevant tax rules, including gifts with
reservation of benefit, the GAAR, and the PET rules, to ensure the advice is technically
correct and not abusive.
14. A tax adviser is asked to provide advice on a client's tax affairs but does not
have the necessary expertise. What should the adviser do?
A. Provide the advice anyway as the client has requested it
B. Decline to act and refer the client to a specialist
C. Research the topic and provide the best advice possible
D. Ask a colleague to provide the advice without disclosing this to the client
4|Page
