Client does not want to resubmit incorrect SA rtn

Client accidentally submitted company income as personal income in their self assessment tax return.

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Hi All

I have a client who recently joined us to help complete his company accounts. He works under the construction industry scheme and all income is taxed 20% at source.

After further investigation into his personal and company positions, I found that the client had accidentally submitted company income as his personal income in his 2016 self-assessment tax return. He also appears to have claimed very high expenses and received a refund of over £3,400! He submitted the accounts a day after the tax return was issued (07/04/16) and has received the refund from HMRC. HMRC have not spotted this error yet. I have informed the client that he had submitted the accounts wrong and that we would need to resubmit the accounts and that he is also at risk of a tax enquiry and receiving penalties. This will mean that the client will have to pay the tax of £3,400 back as it was a genuine error.

However, after discussing this with the client, he is reluctant to resubmit and pay the tax back. He is not convinced that he will have a tax enquiry and is prepared to hold out for a year after submission (06.04.17). If the client refuses to resubmit the accounts and pay the tax back is it our legal obligation to report him to the tax office and terminate our services with the client? Any other action one would recommend as an alternate?

Thank you in advance for your help.

Replies (10)

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By Tim Vane
24th Feb 2017 09:52

Accidental or deliberate, he is still going to incur significant penalties and interest. And it sounds like he is now deliberately acting fraudulently.

The best advice is probably to disengage and submit an SAR. But you are allowed to attempt to dissuade him from his course by explaining that you will have no option but to report it because it is a legal requirement of your MLR duties. That genuine threat may push him to make the correct decision, but could also irreparably damage your relationship so you'll probably have to resign anyway. No loss though by the sound of it if that is the type of scumbag client he is.

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By Vaughan Blake1
24th Feb 2017 09:55

I wouldn't want a thief as a client so I would terminate, report it to the MLRO and beware not to "tip off" about the report.

Stealing on the basis that you are unlikely to be found out is still stealing!

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RLI
By lionofludesch
24th Feb 2017 10:03

As soon as he knows about it, it's no longer accidental.

If he doesn't take your advice to resubmit, "invite" him to go elsewhere.

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Tornado
By Tornado
24th Feb 2017 10:10

I think it is just a sign of the times, particularly among the younger generations. There seems to be a culture of non-responsibility where it is normal to try and get away with something if you can.

I have also noted that HMRC are the same and will tell blatant untruths if they think they can get away with it.

Just recently I was questioning a client about a shortfall in a cash account and her answer was something like "can't we just call it rent paid". No doubt without my assistance, that is what would have happened.

For me, there can be no turning a blind eye. Errors have to be corrected or the client has to be disengaged as soon as possible. A SAR as well if appropriate.

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By grahambonds
24th Feb 2017 10:45

Have a read of PCRT - section 5 re irregularities.

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paddle steamer
By DJKL
24th Feb 2017 10:56

Possibly silly question, who is registered under CIS, is it him or his company?

Is the company a relatively recent manifestation, has he say prior to its creation traded for some time as a sole trader?

Whilst I do not deal with individual sub contractors reclaiming tax deducted it strikes me as strange that HMRC would pay a refund to him, the individual, if in fact it was the company that had been verified re the deductions made and declared re the contractors, so perhaps a discussion re who was verified re each payment would not go amiss.

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Replying to DJKL:
By Paul D Utherone
24th Feb 2017 11:35

That is just an effect of SA & "process now, check later" as in http://www.bailii.org/uk/cases/UKUT/TCC/2017/32.html

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Replying to Paul D Utherone:
paddle steamer
By DJKL
24th Feb 2017 11:51

HMRC are certainly strange and inconsistent, interesting case.

On one hand they spray out repayments with no due care and attention, on the other hand my efforts in years gone by to get repayments for overpaid PAYE/NI (often re unclaimed online filing credits when they existed) was like getting blood from a stone.

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By Patss
24th Feb 2017 11:19

Hi All

Thank you for your responses.

If we manage to convince the client to agree to pay back the tax of £3,400. From what date would HMRC charge the interest from? Would it be from the time the client received the refund (June 16) or the filing deadline (31.01.17)? If we resubmit the accounts, the client will not have a tax liability (other than repaying the overpaid tax amount of £3,400).

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Worm
By TheLambtonWorm
24th Feb 2017 11:40

I doubt any penalties will be that nasty, and he'll get the tax back through the company (eventually) anyway - so he wont really lose out once it's all sorted.

The client is taking a big risk for a cash-flow benefit.

In terms of the interest - it should run from the date the over-repayment of tax was made.

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