A new small retail client has recently transferred their Accounting to my firm.
The reasons were due to:
1. A lack of support
2. the previous accountancy firm issued a schedule showing variances between Sales data provided by the client and actual sales.
The reasons for the variance was two fold:
1. All sales were not included on client's Revenue schedule
2. A fundamental error by previous accountants resulted in erroneous reporting of Sales, Output VAT and Input VAT
Clearly point 2 is an error of the accountancy firm. Point 1 is also, as they failed to check the Revenue reported by client to the bank statement which were made available in electronic format. If they had done this, they would have been able to advise the client the nature of the problem, rather than give client a schedule asking client to resolve. Also the problem goes back nearly 2 years at least.
My dilemma is the client can not pay the resulting VAT underpaid as the discrepancies cannot simply be absorbed due to the client's cash flow.
Should I raise this with previous accountants and will their indemnity insurance protect the client and stump up for previously unpaid VAT.
Also small loss last year may need to be restated.
Your thoughts would be most appreciated.
Replies (16)
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I wouldn't have thought the VAT could be claimed from PII
If the VAT should have been paid, but wasn't (even if it was the fault of the previous accountant), then I cannot see an insurer paying the VAT liability, only any penalties or interest that became due because of the mistake or oversight.
The actual VAT liability will remain with the client ... won't it?
Not straight forward
The situation you have described will not be easily resolved as it will be a long & complicated process to prove that the previous agent was negligent, especially if they have identified an underpayment and reported it to the clients. In my experience, many firms do not dirty their hands trying to find out the reasons for discrepancies and simply throw it back to the client - they may or may not be supported by their engagement letter and/or institute in this approach.
Ultimately, the Indemnity Insurance will not pay for the actual VAT, only interest & penalties at best.
i am not interested in a slanging match
the quantum is important here and how does it compare with what you are charging
I should also add, the former accountants detected the problem months earlier when they called the client, who said "impossible".
that is why the client is ultimately responsible
Is it the previous accountants fault?
The accountant may have only recently been provided with the bank statements, or may have only been engaged to prepare the VAT returns from the clients sales documents etc.
absolutely no chance the insurers will pay for this, only interest and penalties IF the old accountant found negligent.
is this a case of client looking to blame anyone but themselves I wonder?
Personally, when I get cases like this I always wonder if the client is a PITA. They usually are.
Have you discussed this with the accountant?
I would be wary of making judgement from listening to just one side of a dispute!
Why don't you call the accountant and have a chat. If you ask them why they did that ... they may just tell you something about the clients records that you are not aware of!
LOL John
my god we all know what you mean - you have done nothing wrong so all i was suggesting that you dispose of the matter asap if not the client!
using a client summary for sales is not so bad in theory especially if its greater than the bank receipts!
lol ... do they know anything?
They think you are right that what they have told you is correct, but they will investigate and report back on their findings?
I'm totally confused now :(
Ahhh... I was confused!!!
I thought you were referring to the client!
It is the previous accountants who are investigating and reporting back?????