Matt 7
Blogger
Share this content
0
12
2038

Client disagrees with advice

Client disagrees with advice

We have advised a Ltd company client that an item he has claimed on his expenses is not allowable and if claimed will have to be declared on his P11D as an employee benefit. He disagrees as 'he knows others that have 'claimed it with no problems'.

Would you leave it on the basis that he is signing the accounts but keep a copy of your written advice to him in the file or ethically should you refuse to act as the accounts will be incorrect. We are not talking large sums (less than £600) but would be interested to hear others opinions. Thankyou.

Replies

Please login or register to join the discussion.

11th Jan 2012 10:16

Yes, but ...

... he is going to refuse to sign the P11D if you show it as a benefit.

An alternative would be to charge the expense to his director's loan account, which would avoid the deduction from the company's corporation tax.  He might not realise what you have done!

It is difficult to comment further without knowing the nature of the expense being claimed, but if you are satisfied that it is not tax-deductible and he has refused to act on your advice, you need to submit a MLR report to SOCA.

Thanks (1)
avatar
11th Jan 2012 10:42

My approach to these issues / ethicial conflicts:

1.  If this is the only such risk item and not material to the accounts I would allow it (assuming it is there is at least one sort of precedent for it somewhere in case law) and document the risk in writing in my close out letter to the client.

2.  I had one client where we already had put through a few such "grey area" items but this was not enough.  In essence he wanted his £2.5k corporation tax bill to be zero, I refused any more adjustments though he'd made it clear he would leave me in that case.  He has left me, and in the handover his new accountant has copies of my letters on all the risk issues and is in no doubt that I was pushed up against the wall on tax, so we shall see.

Thanks (1)
avatar
11th Jan 2012 11:19

Tax tangle

You need to think the tax issues through. If you are going to treat the item as a "benefit in kind" or a taxable expense payment on the recipient, you may well therefore justify a corporation tax deduction on the basis that it is part of his remuneration package. It is also possible that the correct treatment for payroll tax purposes is to put through the payroll so that tax and Class 1 NIC are accounted for on it (rather than Class 1A) as it doesn't sound like a payment in kind, but effectively a payment of income.

This would leave you happier with the accounts as they stand - with the item charged against profit as remuneration, thus reducing corporation tax. Then you come to the issue of payroll reporting. You would have a problem doing the P35 if you believe that it incorrectly omits a taxable payment - the expense payment you are treating as remuneration, so that's where the falling out comes. Obviously lots of companies / advisers allow these things to go through on P11D but if you are going to fall out about it, check the correct treatment (possibly using HMRC guidance on pay and benefits) to be sure exactly what you are in disagreement about. Then, as Euan says, you are clear about what you are making a report about too.

Thanks (1)
11th Jan 2012 12:01

Reporting to SOCA (or not)

I have a concern about the advice on here that this is reportable to SOCA under MLR 2007.

My understanding of the original post is that the client genuinely believes that the treatment he proposes is correct but the accountant is sure that the client is mistaken in that belief.

If that is the case then, in my view, the client cannot be engaged in (criminal) tax evasion.  That is because criminal tax evasion necessarily involves dishonesty and the client here is not being dishonest if he has a genuine (albeit mistaken) belief that what he is doing is correct.

So even if returns are submitted to HMRC which the accountant believes understate the true tax liabilities I would not view this as a reportable matter under MLR 2007 / s330 PoCA 2002.

Of course the client could still be liable to tax, interest and penalties for an incorrect return - but that is a different matter.

David

Thanks (4)
11th Jan 2012 12:16

other q

David,

at the risk of diverting you, I have a client from whom I have just resigned as I refused to act on what I believed was a forged document.  (And when I say believed, I discussed what he could do to reduce his tax bill in the  future and the next day a document appeared purporting to be dated 18 months ago which would mean restating the accounts and reducing the tax charge).

Given the accounts have not been filed, do I still have to report his intentions to defraud the revenue?

No loss has arisen but his intention was clear.

He is a PIA so more than happy to report if there is any doubt...

 

 

Thanks (0)
avatar
11th Jan 2012 12:46

Hmmm

"He disagrees as 'he knows others that have 'claimed it with no problems'."

I read that as "other accountants are letting it through and HMRC have not noticed yet"

Whilst the BIK rules are very out of date in certain areas (phone contracts being one of my biggest bug bears) and can be particularly anal at times (again - phones!) and whilst I have been known to overlook the odd thing which is too small to get bogged down in, the point is

- would he stand up to an enquiry by HMRC; and

- does he want to sleep well at night? 

The fact that others have "claimed without a problem" almost certainly means that HMRC are not aware of the facts if it is not in accordance with the rules.

Thanks (1)
11th Jan 2012 12:51

Money laundering

Your legal obligation (in England & Wales) is to report a suspicion of money laundering (or of offences connection with terrorism related assets - clearly not relevant here).

Money laundering is widely defined and a money laundering offence arises where a person acquires an asset (or succeeds in evading a liability) involving proceeds of a crime.

So before there can be any money laundering a crime must have been committed from which a benefit has been derived.  (That initial crime is sometimes referred to as the 'predicate offence'.)

In relation to tax evasion no benefit is derived until tax which is being evaded falls due for payment.

The forging of a document with the intention of gaining a benefit is a crime.  (Exactly what crime depends on the circumstances - but forgery, false accounting and fraud by false representation and three likely 'candidates'.  You don't need to know precisely what crime the predicate offence was.)

But it may be that, as yet, no benefit has been derived from that crime.  So, strictly speaking, there has - as yet - been no money laundering offence and, since it is the money laundering rather than the predicate offence which triggers your obligation to report, you are not currently under any legal obligation to report your suspicion.

Does that answer your question?

David

N.B. Reporting obligations are wider in Scotland.

Thanks (3)
11th Jan 2012 13:49

.

David, thanks for that, perfect answer and I must be learning something from your posts as concluded the same albeit without the proper terminology.  But presumably if I know another accountant has acted upon the (potentially) forged document, an offence would arise and I would have to report..?

Thanks (0)
avatar
Tim Vane
11th Jan 2012 14:42

i've often wondered what others do in this scenario ... 

 

for me ... 

 

if i'm 100% sure of my position, and ideally if i can refer a sceptical client to a BIM, PIM etc, or legislative ref, then the client accepts my advice - delivered patiently & diplomatically - or we part company.  there isn;t any point IMO carrying on a relatiosnhip where the client doesnt trust my expertise & judgement.  END OF!

 

if its a "grey" area ... and there is some "wiggle room" (tech term), then we can discuss & arrive at a position that we can both live with.  as above, there is a limit though ... 

 

some clients accept what you say & never query it ... 

 

some clients argue over every single thing ...

 

most clients raise the odd query & grumble a bit (e.g. intangible cap asset treatment for new skills training! argh!) ... 

 

i have asked 1 or 2 clients ... once we have reached a deadlock ... which of us do you think knows more about this topic, and has more experience in advising on it?  ... i think it shows weakness and lack of judgement to take a view on an item & then do a "climb down" because the client objects. 

 

 

 

 

Thanks (0)
avatar
11th Jan 2012 14:32

I heard it down the golf club and other stories

 I would email them the link to the relevant HMRC manual as regards the tax treatment. Seeing things in an official document is sometimes a bit more convincing. Some clients find it easier to process written information than things they hear, particularly when they're cross.

If it's really annoying you, I would arrange a conference call to one of the tax advice lines with your client so he can hear the bad news from a third party. 

Thanks (1)
11th Jan 2012 21:36

Further point

If you suspect that a person has committed a money laundering offence and that suspicion is based on information which has come to you in the course of your professional work then (unless one of the exceptions applies) you have an obligation to report it.

It is irrelevant whether your suspicion relates to a client, or a former client, or someone who has never been a client.

Does that answer your question?

Incidentally I came across a couple of interesting quotes from decided cases recently that relate to the person's awareness that he is doing wrong in the context of allegedly criminal acts.

The first concerned a prosecution (by a local authority) of a man who was alleged to have failed to notify to the authority a change of circumstances affecting his entitlement to Housing Benefit.  The case is Coventry City Council v Vassell [2011] EWHC 1542 (Admin).  At para [50] it says this:

The legal maxim actus non facit reum nisi mens sit rea (the act committed does not establish guilt unless the mind of the actor is guilty) has evolved into a presumption that Parliament intends statutory offences to require mens rea, and so, where the statutory provisions are silent as to mental element, appropriate words must be read in to require mens rea (see, e.g., the classic statement of Lord Reid to that effect in Sweet v Parsley [1970] AC 132 at page 148). The presumption generally requires the defendant to have "a knowledge of the wrongfulness of the act" (Sherras v De Rutzen [1895] 1 QB 918 at page 921 per Wright J).

The second judgment is from a First Tier Tax Tribunal in the case of O' Rorke v Revenue & Customs [2011] UKFTT 839 (TC) concerning a personal liability on the part of a company director for National Insurance contributions not paid by the company.  In this case the tribunal considered the fixing of that liability on the director personally was akin to a punishment.  So it interpreted the word "neglect" in that context as if it were dealing with criminal (and not civil) law.  The tribunal concluded that "neglect" had to be viewed therefore subjectively rather than objectively.  So the mere fact that the director had not done what he ought to have done was not, in the tribunal's view, sufficient to show "neglect" on his part for the purpose of attaching to him personally a liability for the unpaid National Insurance contributions.

David

Thanks (0)
avatar
11th Jan 2012 23:31

this sounds uncomfortably like

an it contractor placing his trust in internet forums and a tendency to treat us as suspect judging by what goes on in such places.

The devil is always in the detail, we do not know the detail of the item, nor of the "others who have done it", and so on. The other accountants may not be aware, it all depends and I see a lot of assumptions in the above. 

I am tempted to suggest and so do so, that if the matter cannot be linked to a link to HMRC then not enough detail is to hand (this is after all paye/benefits issue); and if msieur client disagrees with that link, he has to be able to say exactly why. If he won't then that begins to appear more willful and the response becomes easier. - anthony

 

Thanks (0)