No. I disagree with that treatment of filing fee's for sole traders and partnerships.

for sole traders that one's a legitimate expense of the business as the business and the individual are so intertwined as to be inseparable so it's an expense allowable against the business.

For owner managed limited companies caught under IR35 however accountants fee's must form part of the 5% allowance for administration costs. (So deduct from the amount available for distribution as a dividend for IR35 affected companies).

That aside I do agree with the treatment of proprietors Tax and NI liabilities as drawings.


-- Edited by Shamus on Sunday 13th of June 2010 03:40:20 PM

Hi Bill,

I've got no self employed or partnership clients so this is just from reading and theory.

I'm quite happy to be proven wrong on this matter but my understanding of matters was that due to the intertwining of personal and business the cost of filing the returns was allowable.

If you take a look at the notes to SA103f, specifically note 27 of SEFN8 states that accountants fee's are allowable without reference to apportionment and nothing in SEFN9 seems to disagree with that.

Refer to http://www.hmrc.gov.uk/worksheets/sa103f-notes.pdf

Shaun.

Hi Bill,

As far as I know tax and NI payment for the proprietors is not allowable, NI for employees strictly if it is related to employee is allowable. Accountants' fees are allowable for preparation of accounts. I suppose SA tax returns filing is not accounts preparation and if tax and NI is not allowed then the fee for calculation of this tax(SA) isn't either. I couldn't find anything about this in the guidances either. Good question, wish I would know it for sure.

Hi Attila,

It was a very good throw away comment that Angela threw into the melting pot wasn't it!

Personally I can see the logic for the accountants fee's being allowable and as mentioned above, nothing in the notes to the self assessment return seem to counter that understanding.

I fully appreciate though that there is probably some document hidden on the HMRC site that states completely the opposite to the way the I see it working for the self employed.

Fingers crossed we'll find the definitive answer sometime tomorrow.

Talk then,

Shaun.

Shamus wrote:

---

........ (bet you've found a better example than mine Bill!).

---

Hi Shaun

Regrettably not (yet!?).

I have been busy unravelling the accounts of a new client.

Bit of a saga but an acquaintance of mine found out I was a bookkeeper and asked if I would take over a client of hers as she is moving to Ireland. At first I was quite grateful but am now starting to regret it. It turns out there is 3 years worth of Sage data, with no closing off the years (the financial year start date is April 2008, with remnants of 2007). The client voiced his concern about how expensive his accountants fees have been each year, I'm now not surprised.

To make matters worse, there has been no purchases entered since February and the VAT return is due by end June. The VAT return function on Sage has been rendered useless, because the entries are not accurate. Oh joy

To rub salt in the wound, her fees are well above average for here, and it turns out she has no bookkeeping qualifications and her only experience has been doing her own books for a shop she used to have. "What's MLR?" was the response when I asked who she is registered with!

Makes you wonder how many more, are out there, doesn't it?

Shamus wrote:

---

Is the client on board with how much this is going to cost to rectify? Methinks best to tell them up front that you're going to need to redo everything that the previous bookkeeper messed up and make sure that they're ok with the fee that you're going to need to charge.

Good luck matey, won't be expecting to hear too much from you for the rest of the week then!

Talk soon,

Shaun.

---

You may hear from me more than normal, with a barrage of questions!!!

I am talking to the client this morning, and I don't think it is going to be an easy conversation, bearing in mind the last time I spoke to him he told me that everything was ready for his Year End (April) and the VAT Return was ready!! Got to break the news that what I collected off his previous bookkeeper was a crate full of loose invoices & recepts, which go back over nine months (which doesn't help the VAT return)

Speak later - maybe!

 

Morning Shaun

Many years ago I was manager of a garage, so perfected the pre-amble intake of breath, preceded by a "Tch".

Good luck for tomorrow, and have a safe journey.

Rob, are you out there?

Hi Ruth,

as I state above, take a look at

http://www.hmrc.gov.uk/manuals/bimmanual/BIM46450.htm

and

http://www.accountingweb.co.uk/item/180894

It seems that my take on our fee's for preparing the self assessment of those carrying out a trade is correct and the fee's whilst not strictly an allowable expense are likely to be accepted where such form a minimal part of our work on their business accounts as a whole.

Its one of those where there may be no right or wrong answer but your answer should give a compelling argument (such as inseparability of services).

You need to read the above in conjunction with the two links which fully meat out the argument.

Hope that this helps, and hope that you get the marks in the exam... Even if the ICB say that it's wrong that doesn't mean that it is! They're not infallible and if you lose marks on it refer them to the above links which make it clear that this is not a black and white scenario with a yes / no type answer.

Shaun.

Hi Bill,

The answer for the million dollar question is... to pay an accountant to fill in SA tax returns is not an allowable expense. Confirmed by HMRC

Different thing but a very interesting read:
http://www.hmrc.gov.uk/about/hmrc-learning.htm
I thought I share this.

Hi Bill,

I think that working out the split would take longer than filling out the return!

Following on from the statement about a bod having multiple businesses isn't that an argument in favour of inseparability of the elements of the return.

To file the self employed pages the taxpayer must also file the rest of their return so is that not further argument that the rest of the return is allowable in order to be able to file the self assessment apportionment of it.

If there is potential of a query why not just offer the self assessment free for business clients but increase the fee for business services by the variance.

Actually, that's getting off the point, this is theory, not practical.

Unfortunately my copy of the Bible is well out of date (1998!) and I still haven't been able to find anything to back the opposing argument on the HMRC website.

I think maybe we give this a few more messages for the sake of debate and greater knowledge and then give up if we still don't have a conclusive, evidenced conclusion one way or the other.

Hope that things are going well with the client... Just ignore their weeping and showing you pictures of their children when you're talking money. (Well, if you didn't realise that I was a banker before you certainly do after that last sentence!).

Talk later,

Shaun.

Hi Bill and Shaun,

I agree just because someone said this at HMRC does not mean if you speak to a different person will not get a different answer (sad). Source HMRC SA agents dedicated help line. Asked scenario self employed no employees. They said no so I asked I know accountancy fees are allowable and and they said yes they are but am I asking about if the self employed pays an accountant to do his SA tax returns and I said yes for that. Than they said this is not an allowable expense. I phoned them about something else originally but as I wanted to know the answer I asked this as well. They did not quote any case or regulation...
They might be right and they are just not bothered with the odd £50 in the case of those who included this in allowable expenses but they might be completly wrong. Do not worry if I happen to talk to them again I will ask the same question just to see.
I would like to add one more to this... what about my case two jobs plus self employed, surely it would not be allowable?

there you go,it is good to have those dedicated agent help lines where you can speak to a more experienced advisor, theye are always there to help :)

Congratulations to your exam!

-- Edited by attilabenko on Tuesday 15th of June 2010 05:09:43 PM

Still looking!!

I still haven't found the exact piece I am looking for but the closest  reference I can find so far is the terminology used in BIM37800 Wholley and exclusively: expense of earning or application of profit

As a general proposition what a trader does with the profits once they have been earned has no bearing on the calculation of the profits for tax purposes. This follows both from the normal rules of commercial accountancy and also from the wording of ICTA88/S74 (1)(a). There is a clear distinction between:

• expenses incurred in earning profits, and
• expenses paid out of profits.

This does not specifically deal with our scenario and is still a little fuzzy round the edges

The way I see it is that the completion of an SA return is only necessary after a profit has been earned and is therefore an expense paid out of profits

Hey Bill,

I just found the following on the world wide web, this is a copy of a letter from the Freedom of Information Team of HMRC to someone. I blanked out the personal details, you never know who is reading this...

AA BB
Freedom of Information Team
HM Revenue & Customs
100 Parliament St

London SW1A 2BQ

Mr X

Tel

(sent by email to:

Fax

Email x@hmrc.gsi.gov.uk

Date
2 July 2009
www.hmrc.gov.uk

Our Ref
FOI 11111

Your Ref

________

Dear Mr X

Freedom of Information (FOI) request

I refer to your Freedom of Information (FOI) request on 4 June 2009 for the following
information:

(1) Please tell me what are the current HM Revenue & Custom's regulations in
relation to individuals claiming a tax allowance for the cost of an accountant (or other
such suitably recognised person)and how such a claim could reduce such a persons
tax liability (if at all) when such a person is:

a) a self employed person

OR

b) an employed person (On a PAYE scheme)

(2) Further please confirm if a Member of Parliament is defined as an employed
person or a self employed person?

(3) And finally confirm to what special tax dispensations or allowances (if any) do
Members of Parliament enjoy or receive compared to either a self employed person
or an employed person?

1. Tax treatment of costs incurred for accountancy fees

Self employed persons

Information is available in large print, audio tape and Braille formats.
Type Talk service prefix number 18001

A self employed person can claim expenses in computing the profits of their trade,
profession or vocation provided the expense is incurred wholly and exclusively for the
purposes of the trade, profession or vocation and is not specifically excluded from deduction
by legislation (e.g. capital expenditure). The relevant legislation is at sections 33 and 34 of
the Income Tax (Trading and Other Income) Act 2005.

Fees incurred for preparing accounts for commercial reasons and for many other
accountancy services will meet the wholly and exclusively requirements of ITTOIA 2005 s34.
Also allowable are the normal recurring legal and accountancy fees incurred in preparing
accounts and agreeing the tax liability in respect of the trade profits. This includes the
preparation of a tax computation. This adjusts the profit in commercial accounts to give a
figure of profit for tax purposes which does not include any expenditure disallowed by the tax
legislation.

The costs of completing an individuals tax return would not be allowable costs in computing
trading profits as such costs would not be incurred wholly and exclusively for the purposes of
the trade.

Employed persons

The tax rules governing allowable employment expenses are well established and tightly
drawn. It is a basic principle of the UK tax system that only expenses incurred in actually
earning income from a particular source are deductible in calculating the tax payable on that
income. Relief is available only if the expenses are incurred wholly, exclusively and
necessarily in the performance of the duties of the job. The relevant legislation is at section
336 Income Tax (Earnings and Pensions) Act 2003.

This rule applies to employees across the board. To qualify for relief a very direct connection
between expenses incurred and the actual execution of the duties has to be demonstrated.
Accountancy fees for the preparation of an individuals tax return enable the individual to
meet their personal obligations as a taxpayer and tax relief is therefore not available.

2. Employment status of MPs

Members of Parliament are office-holders in relation to their position as an MP and are
therefore taxed as employed persons.

3. Special exemptions/dispensations applying to MPs

MPs are taxable on the earnings from their position as MP. Certain expenses that they
claim, in particular the expense allowance for the costs of overnight accommodation away
from their home to enable them to carry out their Parliamentary duties, are specifically
exempt from tax. But other expenses, including accountancy fees, are taxed according to
the usual rules on the taxation of employment income. A deduction can then be claimed,
again according to the usual tax rules, for general expenses which MPs incur wholly,
exclusively and necessarily whilst performing their duties as an MP, or for travel expenses
which they have to incur on travelling whilst performing those duties.

If you are not happy with this reply you may request a review by writing to HMRC FOI Team,
Room 4/52, 100 Parliament Street London SWIA 2BQ. You must request a review within 2
months of the date of this letter. It would assist our review if you set out which aspects of the
reply concern you and why you are dissatisfied.

If you are not content with the outcome of an internal review, you may apply directly to the
Information Commissioner for a decision. The Information Commissioner will not usually
consider a case unless you have exhausted the internal review procedure provided by
HMRC. He can be contacted at The Information Commissioners Office, Wycliffe House,
Water Lane, Wilmslow, Cheshire SK9 5AF.

Yours sincerely

aabb

link to the site I found this : http://www.whatdotheyknow.com/request/tax_allowances_granted_for_the_u

In terms of trying to find the right information about our debate, well, I read lots of info on HMRC website today. Had no connection with the topic but they were very very useful, shame I am not going to remember where they were when I need them and it is absolutely not possible to find anything specific you are looking for on HMRC website unless you know the codes and numbers. But yes this topic was so far the most educative for me this year!

Ruth, again congratulations. Only concern to me it does more and more look like you cannot include SA filling in allowable expenses but in this case what about the ICB exam?

Very interesting, it certainly does raise questions for the ICB exam.

Thank you for the congrats, but I haven't earnt them yet. I only got a 'partial', not a pass yet - the tax return and calciulations were all correct but you also have to include a report for the client and they want me to redo that slightly differently...if I were a cynical person I'd think there was an underhand reason for that...but I'm not so I'll alter it and send off the £25 to have it re-marked...

Hi Attila,

Sorry for the delayed response, been out all day today.

excellent bit of research. In Robs current leave of absence consider yourself promoted to honorary Guru!

Right, from the research done on here and arguements and conclusions reached I think that yours and Bills positions were actually correct.

Told you I dodn't mind being proven wrong. I just sometimes need to have my head bounced repeatedly off a desk until I realise it.

Joking aside, this has been a really interesting debate, We'll certainly now all know where to look for the evidence, argument and conclusion if this issue comes up again.

Bet Angela didn't realise what it would become when she posed the suggestion!

Hi Shaun,

Hope you will get a positive resopnse from Edinburgh.

Thanks for the promotion :) but I only deserve it if i will be able to apply the knowledge I gained in this debate...and I did learn a lot going through HMRC manuals,etc.

Once I asked my sons school why don't they get homework ever and why is that they don't seem to learn too much in school either as back in my time we had to sit and learn. They said nowdays it is more important to know where to look when you need info thean what you actually know and this is what they are trying to teach them...well I did not really agree but now I can see the point (ther is SOME truth in it). In the last two days I mastered searching the internet for relevant and reliable information and I did learn without actually thinking about I am learning now.

-- Edited by attilabenko on Thursday 17th of June 2010 09:52:26 AM

Morning Attila,

Hope that you are well.

my problem with my son is trying to get him to use books rather than the internet in order to study.

He's not allowed to use the internet at all at home for study but there's nothing that I can do about how he tracks down information at school.

Like yourself I'm old school in that you need to carry about a certain amount of knowledge without reference. I mean, we can't look in the books every time that a client asks us a question.

However, with the sheer volume of stuff that we need to know, knowing which book it's hidden in is a real skill all in itself.

Sometimes I really think that's what the ACCA studies are teaching me because as I go from one exam to the next I seem to overwrite my brains storage of the previous subject with the new one but I never forget which process is covered by which paper.

On the subject of ACCA the exams are changing again. If you do the UK stream it's not disappearing but you must now know the entire International stream as well as the UK one... Begs the question why would anyone opt to have to know twice as much. Why not just do International stream?

Other changes coming in are that Audit now includes insolvency and more emphasis is to be placed on SME's.

Hi Attila,

At the moment, providing all of the wrinkles are ironed out then UK GAAP is to go in 2012.

The adoption of IFRS for SME's as an equivalent to the FRSSE seems to have removed another of the boundaries to adoption.

Some things won't be missed at all when it is brought in. Specifically the complexity of UK GAAP based cashflow statements as opposed to those prepared under IFRS.

The downside though is that I believe it's still in the mix that all companies, not just the larger one's will have to have cashflow statements produced as part of there annual accounts.

What I will miss is the fact that I've got so many quotes memorised and the usefulness of this information burned into long term memory is on a countdown timer.