Think I am ok with this but would appreciate any advice etc.
New client, professional clearance obtained from previous accountant.
In preparing the 2011/2012 return I needed to refer back to 2010/2011 accounts / return.
In doing so I discovered an omission by the previous Accountant. If corrected will mean a refund of approx. £300 for my client.
Not a major problem. I hope.
However, the previous Accountant filed the return, and there are some other figures that I have no reason to think they are incorrect, but I don't have any of the invoices etc. to check.
The Accountant no longer responds to my letters, and phone calls have gone unanswered.
Now the problem: -
I could copy the incorrect paper return into my software (tax calc), and file the "correction"
This would correct the error, but does it also make me responsible for the other entries of which I cannot verify?
Many thanks
Jay
-- Edited by Jay on Thursday 25th of October 2012 09:35:08 AM
There is a possibility of doing a correction but you need to be certain there has indeed been an omission and that the return is incorrect.
Barring Shaun's suggestion, it seems cut and dried that these were incurred. However, unless you've seen a thorough audit trail, then there could be an adjustment in the previous accountants figures which account for the apparent omission.
So be careful. It's unlikely, but the client could sue you for incorrect advice*. Also a correction is waving a red rag to the HMRC bull saying, "sorry, the records weren't good enough to get it right first time". The other thing is; can the Revenue throw into doubt any or all of the other transactions and treatments. I'm thinking private use proportions specifically? You re-open the Enquiry Window by making an amendment.
On the other hand, many new client's will have incomplete records and we know how to assemble a reasonable set of accounts and despite this we're prepared to attach our names as otherwise, the accounts may not get done at all.
The cost of not doing a correct might be more than the £300 refund, if he had paid tax that year.
Don't be tempted by the kudos of doing a better job, just what is in the best interests of your client.
best regards,
Tim
* Omitted word
-- Edited by Don Tax on Thursday 25th of October 2012 02:07:22 PM
My take is yes in that you would be representing all of the return not only the correction (so effectively absolving the previous accountant of responsibility by concurring with their return).
On the matter of the accountants professional obligations, provided that they replied to your initial requests for information (professional etiquette response, final set of accounts and the trial balance upon which such were based) there is no obligation for them to communicate further so no breach of professional duty there to be answered to a supervisory body.
And now the get out of jail free card.
Why does the client not have the relevant documentation to support the return? Such was their responsibility not the accountants (although clients often seem to miss that bit in the engagement letter... If indeed they actually read any of it!).
Have words with the client about the documentation and if they do not have it then simply point out that they have just cost themselves a £300 refund.... Of course put it in a nicer way than that.
I wouldn't try pinning the issue on the previous accountant otherwise your just pulling a pin out of a grenade and giving it to the client. Just go with the client not having the documentation available to fully support the claim for a refund.
Clients fault, your off the hook, sorted.
hth,
Shaun.
p.s. on the other matter, as the correction is within 12 months and it wasn't an underpayment, as you identify it should not be a problem in itself if the other details were not getting in the way.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
If I may just add the tax return is always the client responsibility.
What is the omission ? and what are the 'some other figures' that you would check ?
I would consider accepting a signed declaration containing all the information that would have been on the invoice or other evidence which is lacking. I would also want a full copy of the entire tax return signed and signed again on the p&l or wherever the correction is.
I was seeking the previous accountants to do the correction of his return, but I think that is not going to happen.
The omission was for road tax/repairs and insurance. This had been overlooked by the client.
I now have the invoices from the client for these expenses.
This was identified when I was comparing both years and the motor expenses were out of sync.
I have no reason to think anything else is incorrect, but unless I can actually go though each invoice in turn I cannot be sure.
Are you thinking that it may be appropriate for me to do the correction, with the new return being signed by the client, and the necessary invoices kept on file within my corrected copy return?
The previous accountant didn't get the client to move from expensing the car to charging mileage did they?
The mileage would still come out as motoring expenses but all of the expensed items would be dropped.
just something that might be worth checking there.
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
The vehicle in question is 100% business. My client has a second vehicle for private use.
The fuel was was calculated from a "fuel card" with registration noted.
The missing details were obtained when I questioned the client and he said that he had not passed his motor expenses folder to the Accountant.
I have agreed the motor fuel figure as correct with the card statements. (thanks Shamus re claiming mileage, but not the case )
The repairs, MOT, road tax and insurance documents all have the business vehicles registration on.
The issue, I guess, is the cost of a possible HMRC enquiry even if everything is 100% correct. If I had prepared the Return I would make the correction as I would have all the answers to hand.
Guess I will delay it for a day or two and see what inspiration I have ( or not )
Previous Accountant returned my telephone call, and said the client did his own book keeping, and sent him a summary sheet, and that was what was entered on the Return, without sight of receipts etc
Spoke to client who said that was correct.
He used a spreadsheet to record all his expences etc, but in error did not include what he refers to as Misc motor expences. i.e anything outside the fuel card.
So the error would fall to the client.
I advised him of the options open to him, and that I would not make the correction until I felt the full Return to be accurate, and would like the invoices to support the spreadsheet.
He gave this some thought and instructed me not to make the correction due to the addtional costs involved, and the potential costs of a possible enquirey.
mmmm seem to have lost the best part of a day somewhere.......
Jay
-- Edited by Jay on Friday 26th of October 2012 03:11:10 PM
The fuel was put through, and capital allowances claimed.
I think it was a case of the client not passing other motor expenses over.
My client prepared a spreadsheet to accompany his paperwork., and summarised his income and expenses.
I just wonder if the previous accountant took the spreadsheet as being correct .
Jay.
There can be free insurance and road tax offers with new vehicles and at a stretch, there could be times when there are no repairs. However, if all three happen and it isn't a new vehicle then I would look for another client explanation. So if you can trail the exact motor fuel from the client figures to the Self Assessment, it does seem conclusive that there was an omission.
It'd be interesting for me and other readers of this thread to know the reasons for whatever you decide to do. Make sure the client knows this is entirely his call.
It's difficult for you to comment on the amended tax return 'white space' that..... "I have have thoroughly reviewed last year's entries", but as near as you can possibly do on that score would minimise the chances of an Enquiry.
As you know, you have to be careful amending previous year's tax returns. The expenditure missed out could have been picked up another way, and misanalysed to another expense account.
However, would echo Tim's comment that it really is the client's call.
Just incidentally, I've got a similar situation in reverse - new client, previous tax return done by a relative, claimed mileage AND the cost of a new van - adjustment to 2011 tax return should result in client paying back £2k in tax. Perhaps he should NOT have handed over the working papers???
Maybe there are skeletons in the cupboard - no one is totally honest. Makes me think though, do client's really know what they want when they choose to do their own bookkeeping?
In this case the fees would have been covered by lower tax. Seems a bit rough not asking him for the motor expenses IMO.
Now, after finding reasons in the above posts for the situation that occurred I find myself now taking a sharp intake of breath and thinking. Ooh, that's shoddy.
None of us here would dream of recording anything unless we had seen the evidence with our own eye's.
This accountant apparently worked from a client prepared spreadsheet with no reference to original documents...
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
However, this is not the first time I have come across this. and I suspect this may be more common than thought.
I recently took a new client that argued with me when I gave her a list of paperwork that I required on the basis that her last Accountant did not need all this information.
Its Friday at last..........................
Hope no one has any paper returns they have to work on. deadline fast approaching
Jay wrote:However when the summary sheet was prepared no deducution for private use was made. ( e g home telephone / mobile / broadband etc )
Hi Jay, I wouldn't say it is a client responsibility to work out private use percentages. It is a grey area on whose responsibility, but if we always think in terms of acting in the client's best interests, then we can't go far wrong. In best interests, to me includes value for money re. our fees.
Not quite sure what you mean by "Seems a bit rough not asking him for the motor expenses IMO"
The previous Accountant used the summary sheet sent to him which detailed motor expences, just not the full amount.
Without the invoices he was probably not aware of the missing entries.
Sorry, what I was getting at is that they seemed to think he was driving without tax and insurance for a year. This could have been sorted in a short email of phone call. In going this extra mile to verify the client bookkeeping, I would accept verbal figures to the nearest * £50, knowing that the difference in tax is not material.
Now, after finding reasons in the above posts for the situation that occurred I find myself now taking a sharp intake of breath and thinking. Ooh, that's shoddy.
None of us here would dream of recording anything unless we had seen the evidence with our own eye's.
This accountant apparently worked from a client prepared spreadsheet with no reference to original documents...
Hi Shaun,
* Unless an audit was being undertaken, I can accept some figures without seeing original documents under the balance of probabilities test. EG. In the above example, is it fair to assume his vehicle was taxed and insured? On top of that, the client is signing the Return and (using my best judgement to protect myself), if I don't think he's likely to sue me, then any deliberately misrepresented figures in their books are their lookout. Not that I'm liable to be fooled by outrageous expenses or tiny sales and client's sometimes need protecting from themselves.
In addition, if I then take the lower end of these estimates, the likelyhood of any trouble with HMRC becomes minute.
Also, an audit may involve only sample checks on a portion of the figures.
I've always thought that if I am going to see original documentation for everything, then I might as well get someone to rattle those papers through my computer. I guess we're a million miles apart on this and distinctly reminds me of the fascinating discussion I had with Bill regarding VAT invoices.
A question which occurs to me: given all this talk about things which you know are wrong with the previous year's tax return, is there no requirement that you should at least tell HMRC that you recognise that the tax return was incorrect, even if you have no intention of being the one to fix it? Otherwise aren't you knowingly an accomplice to misrepresentation, or something like that?
