What are peoples opinions on the 'standard' accounts format that many accountants like to use - you know the ones, £250 for laundry, £300 for clothing, £400 for telephone/fax etc etc with no receipts required, they just add it automatically onto all their clients like it's the expected norm? I've never really done this, I base the tax return on the receipts or evidence that the person has, or that we decide they need and off they go to get the evidence.
I have a client coming in this morning who I did a tax return for, that he hasn't signed yet, and I'm pretty sure he wants to come in to complain about the lack of added extras. He had no receipts at all when he came in originally.
What are peoples thoughts on these 'standard' amounts, do you use them, do you think it's right to use them?
Thanks
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Jenny
Responses are my opinion based on the information provided. All information should be thoroughly checked before being relied on.
I am inclined not to add spurious items without evidence for tax return, however, if the client says that they have cleaning costs etc, then i would prepare the accounts to include them.
I always get my clients to sign a standard declaration:
"You have approved the accounts for the year ended 31 Month 2xxx which comprise the Profit and Loss Account, the Balance Sheet and the related notes. In accordance with your instructions, we have compiled these unaudited accounts from the accounting records and information and explanations supplied to us."
Unless you have real doubts about the validity of the claim, it is the responsibility of the client to provide the necessary accurate information, and to prove it to HMRC if necessary
The only thing I would examine closely is any claim of Clothing , as normal clothing is not deductable even if they are used only for work, unless it is a uniform or PPE. It may be OK to include them in the accounts but adjusted out for tax purposes. I had a client who gave me a QB file which included dentist fees, opticians fees for everyday reading glasses, and osteopath, his reasoning was that he couldnt work with out being fit!! took some explaining that he couldn't claim them (I understand that some glasses prescription may be claimable)
The trick is to try and understand your clients business and, from experience, second guess any expenses that they may have but may not consider. The classic example is use of home - some people know about it, some it's a shock. It is not easy!
Hi Bill, yes there is a declaration the same as that in the accounts, so I guess on that basis I could add in to an extent the figures he is looking for as long as he signs it. Not really the way I work though.
Nick, I do that anyway, I tend to find people forget about road tax and different insurances and yes many don't know about use of home. The question though was really to do with the accountants who add extras to their clients accounts as standard and what peoples thoughts were on that?
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Jenny
Responses are my opinion based on the information provided. All information should be thoroughly checked before being relied on.
I would say that it can be embarrassing if you forget about, say, cleaning and your client asks. You can always play the 'where's your receipts' card, but then they'll probably come back with 'well my mate claims for these and his accountant isn't bothered about receipts', at which point they're half way out of the door! Then you would have to argue the case of what HMRC may say in an investigation, that you don't normally do it as it's bad practice, but just this once...
We don't have standards, we obviously know the majority of businesses have telephone, motor, insurance (should have insurance??), and can fit most other expenses in with a conversation about the business. I think use of home is a standard and I've come across several accountants who don't claim for that. Had one who claimed £500 for use of home - which was presumably a standard - we did the calculation based on running costs, space, etc.. and the figure came out at £3k!
Well that was an amusing meeting, he was absolutely fine and as guessed wanted to query expenses. He had his bit of paper with him where he'd worked out how much he'd spent on tools etc etc from his bank statements and wanted to know why he wasn't getting all this back on his tax return - I explained that when he turned up originally with no receipts/info whatsoever clearly my psychic ability had failed and how was I to know he'd spent £54 on chisels and x amount on new brakes for the van! He agreed that it would have been simpler if he'd actually told me about this in the beginning so I'm going to amend the tax return and everyone's happy. Clients!!
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Jenny
Responses are my opinion based on the information provided. All information should be thoroughly checked before being relied on.
I think it is a dangerous game putting through standard amounts for expenses but can be feasible if justified. My advice would probably be to put it through first year but that they should keep every receipt in future years as that is all you would put through.
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I agree, I personally wouldn't put through standard accounts, plus as already pointed out, these can actually leave the client worse off. It doesn't take a lot of time to call your client and run through some standard questions, and if anything, this interest in their affairs will give them the impression that you actually give a crap about their tax bill rather than an accountant that just shoves through some figures without really checking.
Like you I have had clients who have had accountants that "make up the amount of expenses" the client may have had.
There is currently an Accountancy firm (?) who is fighting the HMRC as they removed them as a Agent for doing this for their clients. Currently all thier clients are being investigated by HMRC.
I won't mention the firm, but it has been in the press lately. Some people don't think I take ML seriously, but I certainly think putting in fixed amount for expenses without any factual basis for the claim would come under ML - the question is - as it the Accountant that is ML who will report them?
Just as a simple example, when I started, Vat visits and IR Inspectors were in the general office and I heard the accountant arguing over an amount for laundry done at home. It would have been a builder or mechanic and undeniably, there'd be (small) cleaning costs most weeks. There were no receipts and nothing in the books or bank statements, yet undeniably an expense had been incurred.
He won argument or at least there was no follow up. He often put through work clothing, phone and other small amounts without hard documentation. The Inspector knew that the General Commissioners would back him at a reasonable level as those costs had indeed been incurred.
Like you I have had clients who have had accountants that "make up the amount of expenses" the client may have had.
There is currently an Accountancy firm (?) who is fighting the HMRC as they removed them as a Agent for doing this for their clients. Currently all thier clients are being investigated by HMRC.
I won't mention the firm, but it has been in the press lately. Some people don't think I take ML seriously, but I certainly think putting in fixed amount for expenses without any factual basis for the claim would come under ML - the question is - as it the Accountant that is ML who will report them?
Hi, The Revenue are obviously out to make an example of them and their inventions may have come to light through an individual Enquiry, an aggrieved client or by another departmental inspection/visit.
I dare say HMRC have stats on registered agents and some therefore have more clients invetigated than others. I shouldn't think it follows that the accountant had been reported for ML in this case.
I am curious. If a client makes up expenses and asks us to include them in their accounts we have to report them for ML. If an accountant does exactly the same - they are not ML? Although I have to agree this firm would not have been reported for ML in this case - as who would report the accountants!
The year after SA started, I took on a new client and his wife whose year end was 31 March and his wifes 30 April. I took me a while to find out why the previous accountant had set them up this way, as it was not done because of when they started self-employment!
The husband would give me his wifes receipts & invoices (no bank statements or other records) to have her accounts done for her tax return first. Then after returning the records he would then provide his years receipts with his invoices, I noticed his first month April expenses where the same as her last month April expenses - so realised he was using the expense receipts twice with each business! So I asked for the bank statements as I wanted to reconcile them and check to see if the amount of expenses they were claiming could be substanciated from their statements. It turned out they kept only one joint bank account - both got paid directly into this bank accounts by all their clients. And of course when I checked the outgoings it was obvious that they were claiming double the expenditure they actually had! So not only was he claiming her & his receipts against his income, she was doing the same! Before I got a chance to complete his SA return, the HMRC decided to look into his previous return. I told him I did not think I could assist him as because of the joint bank account the HMRC would look into his wifes accounts too and realise what he had been doing. He didn't believe me and asked to to deal with the investigation. By the end I managed to assist so his wife was not reassessed, but he was and after a lot of negotiation they agreed not to reopen the previous 5 years in full, just reassess some of his expenses for each year, and they did not charge any penalties, just interest. But I told them they were very lucky with the HMRC and I would not be their accountant in the future if they did not keep proper records. I was not surprised when they both gave up self-employment and went back into full-time employment.
Sneaky. Frauke, may I ask if it was obvious that the previous accountant had turned a blind eye or even encouraged this evasion? I ask as I'm sure you know, a few years later and in this case you'd have been the one reporting ML.
A builder once told me of an accountant who was only available by mobile phone and you could hear the crashing of waves near his Majorca villa and the occasional 'chink' of champaign glasses. I believed this tale as his name was nowhere to be found at the alleged UK practice address and he was adding thousands of expenses to all the builders on that site. I could only suppose he was using a false name.
I had heard, about 2004-2005 time, of an accountant not too far away from me who had been doing dodgy things and all his clients were being investigated. I can believe it because I was passed some of his correspondence and for his business, there were 3 different company names & addresses in 3 years, including one (I think) registered in Delaware. For an accountants based in South Yorkshire.
Sneaky. Frauke, may I ask if it was obvious that the previous accountant had turned a blind eye or even encouraged this evasion? I ask as I'm sure you know, a few years later and in this case you'd have been the one reporting ML.
There's always a new wheeze.
kind regards, Tim
Tim,
The client told me the accountant told him how to do it!
