Doesn't matter if you are a bookkeeper or an accountant the rules are the same.
The only expense that either should ever get to make up themselves is their own charges and of course, in doing that it makes them real anyway.
Is this a case of a big practice that can't be bothered looking after a tiny business?
Your potential client does realise that they sign the accounts each year to state that the contents are correct!
That is pretty much what I though, so thanks for confirming it.
No, I think the accountant specialises in that field so knows the industry (my summisation) AFAICT he is a one man band.
Your last sentence is similar to what I have conveyed to my friend and to be honest, he hasn't really paid much attention to the situation in the past. He gives the accountant his self employed earnings, bike sales and purchases, mileage for the year and left the rest to the accountant to sort out. It is only following conversations with me and my raised eyebrows that has got him worried about the implications for himself.that they will be
He has decided not to use the same accountant for the 2111/2012 period, and I will be doing his books for 2012/13 so at least we know going forward they will be an accuarate representation of his expenditure.
John
-- Edited by xantia743 on Thursday 3rd of January 2013 10:52:20 PM
Hi John, aside from the aside which I've not thought about yet.
If he's not conducting an audit, the accounts can be prepared from the best information available.
If he's couldn't justify his submissions then instead of being an established specialist, then by now, he'd have been run out of town. His estimates may be closer to the truth than paperwork that the client may forget to provide.
Is it permissable for an accountant to work out the figures himself? Well, he might have thorough and watertight calculations behind even the most rounded-looking figures, and lets face it, clients don't always keep accurate mileage records.
Just because the accountant hasn't analysed every domestic bill, has no bearing on whether a portion of those expenses has actually been incurred. I'm sure you agree. The exercise is declaring accurate profits, not examining every bill or voucher.
OK, the accountant might be simply gambling that HMRC won't consider it worth their while pursuing the case for a £450 'win'. but there is the small possibility that the Revenue are afraid that even greater claims might be due, if it were to go to Tribunal.
Draft a letter to be signed by the client about the biggest figure, £1200. It would come across better by telephone, perhaps both of you present with the speaker on. If he can justify Admin, then I'd be inclined to go along with the others.
Tim
-- Edited by Don Tax on Friday 4th of January 2013 05:44:47 AM
I have been approached by a friend to do his bookkeeping as he is having reservations about his current accountant.
At present he gives his accountant his gross earnings and mileage (he is involved in the delivery industry) and details of any bikes he has bought and sold throughout the year,, which is a sideline. The accountant then works out all expenses based loosely on mileage.
Having seen his last year and year before figures some of the expenses do seem inflated and my friend is worried if this was ever looked into he could get into trouble with the taxman, even though his accountant is providing the figures and submitting the tax return each year.
I am happy to do his bookkeeping, based solely on receipts and legitimate allowances but the question I have is whether it is permissable for an accountant to work out figures himself, rather than requesting expense receipts, or at the very least, figures supplied by the self employed person.
Doesn't matter if you are a bookkeeper or an accountant the rules are the same.
The only expense that either should ever get to make up themselves is their own charges and of course, in doing that it makes them real anyway.
Is this a case of a big practice that can't be bothered looking after a tiny business?
Your potential client does realise that they sign the accounts each year to state that the contents are correct!
__________________
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.
It begs the question; 'but will he be so happy when he compares the tax bills?' You could ask for an interview and go with your friend to ask how the figures are arrived at. When your friend understands how those estimates are calculated, he might want to instruct the accountant to prepare them in a more or less cavalier fashion. That way, no-one should end up dissatisfied and you might pick up some useful tips.
If you can give some examples, I might comment on how dodgy the figures sound or not.
I did him a quick calculation based on the accountants figures and what I considered suitable and he ended up with around £450 extra in tax (Accountant had calculated just over £2k tax)
That is not to say that if i had done the books the figure would be that much. What I think the accountant has done is, using the mileage as a guide, calculated industry acceptable figures.
Sales are just a litle over £30,000 (including bike sales) Three expenses that stand out to me were admin costs £1200, premises costs £700 and finance charges £200. All figures given are approximates. Premises costs are use of home I assume. My guesstimates were £300, £156 and £0 appropriately.
As an aside to my main post, and one I forgot to include earlier.
My friend has a house share with three others. As he is the longest there, he collects the rent from the others and, using a seperate bank account, pays all the bills and the overall rent to the owner of the property. He doesnt receive any benefit or profit from it.
Is this ok or should this be included in any tax returns?
If he's not conducting an audit, the accounts can be prepared from the best information available.
If he's couldn't justify his submissions then instead of being an established specialist, then by now, he'd have been run out of town. His estimates may be closer to the truth than paperwork that the client may forget to provide.
Is it permissable for an accountant to work out the figures himself? Well, he might have thorough and watertight calculations behind even the most rounded-looking figures, and lets face it, clients don't always keep accurate mileage records.
-- Edited by Don Tax on Friday 4th of January 2013 05:44:47 AM
Firstly, I should point out that the figures I quoted were rounded by me, the Accountant's figures are precise.
So, if ever my friend is the subject of a tax enquiry there will be no comeback on himself? Will it be up to the accountant to say how he arrived at his figures, and is this acceptable to the taxman? My understanding is that bookkeeping is based on receipts, not guesswork, no matter how near the figures may actually be.
My friend, as I understand it, assumed that all he had to do was give the accountant the the income and the mileage (this was the understanding the accountant gave when engaged) and then paid the tax bill requested. If that is ok then fine. I may have alarmed him unneccessarily.
Whether it is acceptable to the taxman would depend on the accountants reasoning and calculations for each expense claim. Before your friend signs a tax return, he should be certain as to what he is signing. You have helped him understand that.
Although, you might be right that there has been a simple exercise conducted based on flimsy evidence, £1200 admin. doesn't seem outrageous on a £30K turnover. I believe that preparing accounts to the best of your knowledge and belief can involve more than examining receipts and in this case, it seems that the next step is to find out how the accountant justifies those numbers.
It is not unusual to put calculations or estimates of certain figures through.
I personally think accountants find this easier to do than bookkeepers as quite often the materiality concept can be applied (bookkeeping tends to be more accurate as it deals with input of the figures).
The key is to explain/ discuss any estimates and assumptions made with the client and ensure they understand these are subject to scrutiny from HMRC.
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