The three Risk Assessment Factors in PCG 2021/4 each assess a different aspect of the profit allocation arrangement and each contribute a score toward the overall risk zone. RAF 1 — Proportion of Profit Entitlement (paragraphs 82–83) measures the percentage of the firm's net income that the IPP receives directly versus through associated entities. A higher proportion received directly means a lower (better) score. RAF 2 — Total Effective Tax Rate (paragraphs 84–99) measures the overall effective tax rate across the IPP and all associated entities receiving a share of the firm's profits. A higher effective tax rate means a lower (better) score. RAF 3 — Appropriate Remuneration (paragraphs 101–105) is an optional third factor that assesses whether the IPP receives a salary or drawings from the firm that is appropriate for their role and skill level. The three RAF scores are totalled and the overall risk zone — GREEN, AMBER, or RED — is determined by the total score per PCG 2021/4.
What are the three Risk Assessment Factors (RAFs) in Professional Firm Profits?
Understand the three Risk Assessment Factors (RAFs) under PCG 2021/4, including profit entitlement, effective tax rate, and appropriate remuneration.