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Guidance on the provision of accountancy services to Russia

The government has published the statutory instrument imposing a ban on accountancy and other services. This legislation came into effect from midnight on the 21 July 2022.

The Statutory Instrument amends The Russia (Sanctions) (EU Exit) Regulations 2019 by introducing Regulation 54C, which provides that:

(1) A person must not directly or indirectly provide, to a person connected with Russia:

  • accounting services;
  • business and management consulting services; or
  • public relations services.

The government has also updated its Guidance. The Guidance states that the definition of accounting services is based on the Provisional Central Product Classification (CPC) Codes 1991 and includes CPC 86212 Accounting Review Services, CPC 86213 Compilation of Financial Statements services, CPC 86219 Other Accounting Services and CPC 86220 Bookkeeping Services, except tax returns.

The definitions of business and management consulting and public relations services are based on Extended Balance of Payments Services classification (EBOPS) 2010 and includes EBOPS 10.2.1.3 - Business and management consulting and public relations services includes advisory, guidance and operational assistance services provided to businesses for business policy and strategy, and the overall planning, structuring and control of an organisation.

The following guidance has been provided to help firms identify banned services. However, firms may wish to obtain legal advice in cases where it is unclear if a service is included or excluded.

Who does this apply to?

The prohibition on public relations services is not covered by this guidance.

The prohibitions and requirements imposed by the Regulations apply within the territory of the United Kingdom of Great Britain and Northern Ireland and in relation to the conduct of all UK persons wherever they are in the world. UK persons includes British nationals, as well as all bodies incorporated or constituted under the law of any part of the UK.

Accordingly, the prohibitions and requirements imposed by the Regulations apply to all companies established in any part of the UK, and they also apply to branches of UK companies operating overseas.

Consequently, the ban affects any firm providing these services and not just those traditionally considered as an ‘accountancy firm.’

Accountancy services that are prohibited

Accounting review services Reviewing services of annual and interim financial statements and other accounting information. The scope of a review is less than that of an audit and therefore the level of assurance provided is lower.
Compilation of financial statements services

Compilation services of financial statements from information provided by the client. No assurances regarding the accuracy of the resulting statements are provided.

Preparation services of business tax returns, when provided as a bundle with the preparation of financial statements for a single fee, are classified here.

Exclusion: Business tax preparation services, when provided as separate services (see below)

Other accounting services Other accounting services such as attestations, valuations, preparation services of pro forma statements, etc.
Bookkeeping services, except tax returns Bookkeeping services consisting in classifying and recording business transactions in terms of money or some unit of measurement in the books of account. Exclusion: Bookkeeping services related to tax returns (Business tax preparation and review services).

Accounting Services that are not specified in the guidance as prohibited

There are certain sub-categories of accounting services within the CPC code that are not listed within the statutory guidance. Firms may consider that this means that these services are not prohibited but should consider obtaining legal advice.

Financial auditing service Examination services of the accounting records and other supporting evidence of an organization for the purpose of expressing an opinion as to whether financial statements of the organization present fairly its position as at a given date and the results of its operations for the period ended on that date in accordance with generally accepted accounting principles.
Business tax planning and consulting services Advisory services to enterprises on how to arrange their affairs, with a view to minimizing the impact of income taxation on their profits by taking advantage of all allowances and benefits that the law provides. Exclusion: Similar advisory services but including preparation or review services of various returns and reports for the client are classified in subclass
Business tax preparation and review services Services consisting in preparing or reviewing, for enterprises, various returns and reports required for compliance with the income tax laws and regulations and defending them if contested by the tax authorities. This may also include tax planning and control.
Individual tax preparation and planning services Services consisting in advising individuals on the means to minimize the impact of income tax on their revenues by taking advantage of all allowances and benefits that the law provides and/or preparing the returns and reports required for compliance with tax laws and regulations.
Other tax related services Services consisting in assisting enterprises in tax planning and control other than income tax and preparing all documentation required by law.

 

Business and management consulting services

The ban on business and management consulting services covers a wide range of services. These are advisory, guidance and operational assistance services provided for:

  • Business policy and strategy; and
  • The overall planning, structuring and control of an organisation

This includes, but is not limited to:

  • Management auditing
  • Market management
  • Human resources
  • Production management
  • Project management consulting

Circumventions - Regulation 19(1)

A person must not intentionally participate in activities knowing that the object or effect of them is (whether directly or indirectly)

  1. to circumvent any of the prohibitions or
  2. to enable or facilitate the contravention of any such prohibition.

A person who contravenes the prohibition above commits an offence.

Persons connected with Russia

Regulation 21(2) provides that ‘A person connected with Russia’ means:

  1. an individual who is, or an association or combination of individuals who are, ordinarily resident in Russia;
  2. an individual who is, or an association or combination of individuals who are, located in Russia;
  3. a person, other than an individual, who is incorporated or constituted under the law of Russia;
  4. a person, other than an individual, who is domiciled in Russia.

Consequently, the ban does not include Russian citizens, unless they are ordinarily resident or domiciled in Russia.

Licenses

Licences may be issued for certain trade activities that would otherwise be prohibited by the Regulations. The Department for International Trade (DIT) has overall responsibility for trade sanctions licensing. The Secretary of State for International Trade is ultimately responsible for decisions to grant or refuse a trade sanctions licence in any individual case.

The guidance state that a license may be granted for the provision of professional and business services:

  • for the delivery of humanitarian assistance activity.
  • for the production or distribution of food provided that this is for the benefit of the civilian population.
  • for civil society activities that directly promote democracy, human rights or the rule of law in Russia.
  • for services required by non-Russian business customers in order to divest from Russia, or to wind down other business operations in Russia.
  • for services to a person connected with Russia by a UK parent company or UK subsidiary of that parent company.

Breaches

For accountancy, business and management consultancy and PR services, if you discover that you have breached any of the trade prohibitions or licensing provisions, you should voluntarily disclose the irregularity by reporting it to BEIS.

Exceptions and notifications

Regulation 60DA provides for exceptions in cases where the covered services are:

  • Supplied in order to comply with UK statutory or regulatory obligations, apart from contractual obligations; or
  • Necessary for the official purposes of a diplomatic mission or consular post to Russia, or of certain kinds of international organisations.

Further resources