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Now ex-client

Now ex-client

I have received a repayment notice from HMRC in the post today for a client.  Going onto their website, it appears that (ex)client has submitted his own return, and HMRC have kindly given him a refund.

The abbreviated figures show -

Turnover £1,487.00

various expenses creating loss of £

CIS tax deducted £2,440.00.

Firstly, am I missing something??  By my reckoning, the maximum CIS that could deducted is £297.40.

Secondly, how do I distance myself from the situation?  A disengagement letter will be in the post tonight.  What else should I do - write a letter to HMRC saying that I no longer act for said client?  I know from past experience that just deleting from the client list has no effect........

I do hope that he doesn't spend all the money at once ;-)

Thanks in advance for any wise words of wisdom.  

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26th Apr 2012 15:48

Send a letter to HMRC that you ceased to act for the client with effect from xx.

With any luck this will nudge them to check the return!

Mark

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By B J
Ruddles
02nd May 2012 12:02

Now Ex client

hally993 wrote:

Send a letter to HMRC that you ceased to act for the client with effect from xx.

With any luck this will nudge them to check the return!

Mark

 

That would involve one HMRC dept speaking to another.

No Chance !!

 

BJ

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26th Apr 2012 16:00

Thanks Mark, that is all that I can think of to do - but wondered whether others might have different views - or - tell me that I had missed something spectacularly obvious.

I find it amazing that refunds that make sense in relation to the turnover get held up in security checks for months, but this gets sent out in a week :-)

 

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26th Apr 2012 16:16

Probably not the case but

Remember that turnover is an accounting concept subject to accrual accounting whereas CIS tax reported on a cash basis in tax years.

In a cessation period for example, it will quite often be the case that CIS deductions are taken on income disclosed the previous year.

 

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Mr Hobbit
26th Apr 2012 16:36

Hi Roland - nothing unusual like that.  Neither start up nor cessation, and the amount of CIS deducted would equate to a turnover of £12,200 not the paltry £1,487 submitted.

 

 

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27th Apr 2012 08:43

In similar circumstances, and being at evil bit8h I've explicitly written to HMRC and told them the circumstances and that the figure cannot be correct.

Also consider POCA reporting...

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27th Apr 2012 14:09

Quite normal

For HMRC to pay out without any concern....and will not take any action even if you tell them via SOCA.

These figures ought really in the age of computer analysis to throw up the need for a closer look. There may of course be a strange explanation ??

HMRC are really a Joke !

May be George Osborne should be shown this return and ten others similar.

£1,000 * the number of unrepresented tax payers would be my under guestimate but we are still talking small numbers I guess.

 

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27th Apr 2012 16:32

Thanks

Thank you girlofwight - I hadn't thought of SOCA, but yes, that is now on my list.

Black Knight - I agree, it doesn't a remotely sophisticated computer to throw up a discrepancy of CIS deducted greater than turnover.

 

 

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02nd May 2012 10:50

Careful

 

1) Dont tell HMRC he did ot wrong you are breaching his confidentiallity and he will sue you, however its  unlikely but possible.

2) You MUST make a money laudering report, you have a very solid suspicion that he has done something wrong. He is a client and you havent disengaged him. Failure to do so means you commit an offence

3) Disenage him or not? Your call...I wouldnt because when he gets investigated, he'll need someone to sort this out and I am sure your rates for investigations are easily double that of doing tax returns...so you might make £800 out of it?

4) If you are feeling particularly helpful, you could call him and point it out and offer to fix it for him for £300? Then No reporting necessary? Or if he refuses back to point 2

 

Well tahts what I would do

 

tom and co

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02nd May 2012 11:24

An accounting date other than 5th April will give rise to different figures being used. i.e. Year ended 30th April 2010 (2010/11 Return) Turnover £1487, CIS tax £297.40.

Turnover Y E 5th April 2011 £12,200 with CIS Tax of £2440. The £2440 Cis Tax is reclaimable against the 2010/11 income whilst the higher level of turnover will be reported in the 2011/12 return.

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02nd May 2012 11:30

Bless Them!

Sadly, this type of problem is not unusual. We have had several clients who have gone feral! Whilst it is tempting to 'do the dirty' on them, so far, we have resisted. However, it does stick in the throat that I am many others are paying our whack and some are paying less than they should or nothing at all.

We had an email from a client last week who said that he worked with 28 others on a buliding site and none of the 28 were paying Class 4 NIC and demanded that we got him out it too!!!!!!

Either the 28 are winding the client up, or there are 28 opportunities for HMRC. However, with HMRC's reduced staffing, I think the 28 could regard themselves are fairly safe. Blast!

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02nd May 2012 11:39

just a thought....not possible he missed

a nought off the end of the turnover figure?  I am guessing he doesn't calculate his own tax so it wouldn't become immediately obvious at the point....

 

I am sure other people know the MLR rules better than me but at the moment all we have is a summary of the accounts details submitted.  Thats it...nothing more....no conversation with the client, no sight of paperwork, no understanding of work he has done that year, any idea of his living standards (running around in a new Merc).   Possible that he has a bad debt and he has netted it off against turnover (he may have thought this was the right thing to do) - you don't know and that is the trouble.....

 

Give him a call and advise him that you have received notification that a repayment is due.....say you checked his records and spotted what you thought was an error.  If at that point it becomes apparent that something is amiss report him.....

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02nd May 2012 11:48

Money laundering report (not)

I would not make a report to the firm's MLRO / SOCA under s330 PoCA 2002 / MLR 2007 in this case.

It seems to me that there is insufficient to provide a reasonable suspicion that the taxpayer has deliberately and dishonestly submitted false figures on his tax return.

If he has done the return himself there is every possibility, it seems to me, that he has made a genuine error in completing his return.

There is also the possibility that he has an accounting year end which does not coincide with the tax year end.

With regard to the obligation to report it does not matter whether the suspected person is or is not (or ever has been) a client.  What matters is whether the information upon which the suspicion is based came to the accountant in the course of his professional work.

So unless and until you have reason to believe the taxpayer has acted dishonestly I would suggest you do NOT make a report under the anti money laundering regime.

David

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02nd May 2012 12:04

It's mostly not your problem.

What you should do is write to HMRC and tell them that you have ceased to act, and that you had nothing to do with the preparation of the last return. Don't tell them why you are ceasing to act, or give them any further details, as that would be breaching client confidentiality. After that, do a SOCA report.

I have several times been in this situation. I wouldn't bother trying to sort it out with the client, as by filing the return themselves they have shown they no longer want you to do it.

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02nd May 2012 12:19

No class 4 nic?

@ Robert Clubb..thats because the other 28 are all my clients and I turned them into Ltd companies and trebled  there accts fees but it more than made up for it in NIC savings etc

@ David Winch - I disagree...you have a suspicion and its reasonable, If its an error or not is not for you to decide, someone has done something wrong. You either tell him to fix it and he does or you report him, either or,  no alternative. Of course it came in contact in professional work...it wasnt a meeting in th pub ..he checked HMRC records as his duly appointed accountant...

and cynically, how many times do you think they take notice of the reports..... Its about covering your tale or is it tail?

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02nd May 2012 12:34

@tom....something wrong....

maybe....maybe not.....either way you are not basing it on your own information but something found on the hmrc wesbite.....thats it.   Do you report any clients that you see who drive a merc but only have income of £15k.....I presume you do as that is sufficient info to raise 'reasonable suspicion'?! 

I fear you are straying over that line, where you are simply an extension of the Revenue.....and take their view of things rather than taking the balanced view taking account of all of the info you have (and the info you haven't got - which in this case is probably more critical to the decision to report)...

 

 

 

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02nd May 2012 12:35

I agree with David

The question of was this person a client is one for the lawyers to resolve and it will not be done quickly or cheaply. I have no idea of the legal ramifications of accessing a client's record if you are not his agent but I imagine that the accounting institutes will have a view on this too.

Secondly, it seems to me you don't have anything like enough information to base a report on. There have been various perfectly plausible reasons put forward that would explain the figures submitted.

 

 

 

 

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02nd May 2012 12:50

The MLR reporting issue

The information clearly has come to the OP in the course of his professional work.

Let us assume (for the purpose of this discussion) that the figures on the tax return are incorrect and, in truth, the taxpayer is not entitled to the refund which he has received.

That is not sufficient to trigger an obligation to report.

The obligation to report is triggered by a suspicion that someone (in this case the ex-client) is in possession of an asset (in this case money 'refunded' as a result of the making of an incorrect tax return) which he (the person who possesses it) knows or suspects to be generated from a crime and which was in fact generated from a crime.

If the ex-client has made a genuine error on his tax return then (i) no crime has been committed and (ii) he neither knows nor suspects that he is in possession of any proceeds of crime.  So no report to SOCA is required.

If, on the other hand, the ex-client has deliberately and dishonestly put false figures on his tax return then he has committed a crime and he knows that he is in possession of the proceeds of crime.  The accountant's suspicion of that triggers an obligation upon him to make a report to SOCA.

So the key question, as far as reporting to SOCA is concerned, is - does the accountant suspect that the incorrect return was submitted deliberately and dishonestly to generate a refund to which the taxpayer realised he was not entitled?

If yes - make a report.

If no - do not make a report.

David

P.S.  The situation may change if you have further contact with the client, you obtain information / records from him, on that basis you can tell him the figures on the return are incorrect and he is not entitled to keep the refund, and he then tells you he is not going to tell HMRC that his return was incorrect.  That failure on the taxpayer's part would be deliberate and dishonest and would trigger an obligation to report to SOCA.  But that is not the situation at present.

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By Mini Me
02nd May 2012 13:46

Much ado about nothing

I would:

1) Write to HMRC advising you do not act (only).

2) Client has already disengaged himself (by doing his own return) so simply write to confirm your understanding, i.e. that entire relationship has ended and you have no further responsibility

3) On face of it, there are reasonable grounds for reporting to SOCA, so do so asap.

I can't see anything else needs ot be done.

 

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02nd May 2012 14:53

Thanks David

You are right as usual !

However at a practical level every client will claim he is innocent (or it was the accountant that made him do it) whether the low payment of tax was deliberate or not....It is at least deliberately negligent ?

If we get it wrong in the ex clients favour then we will have to write a three page report for our file and spend a long time arguing with lawyers and professional reviewers on the minute detail of the act, as to why we thought we were right....when someone more powerful might have a different opinion.

The reports are confidential, never read and we are told that an innocent man has nothing to fear......so there can never be any harm in taking the safe route.

It is much easier time wise to write deliberate and report it !  ? as it takes less time to write a report than it does to write down why not !

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02nd May 2012 15:34

madness.....

@the black knight.....so i guess you report all of your clients who are tradesmen?....because i guess they all have taken cash at some point (no matter how small) and not disclosed it.

 

Its about using your professional judgement when considering the rules....per David it is quite clear you do not have to report it given the information we have.....but if you feel you cannot make the approrpiate decision then i guess you should go for the 'safe' option.....good luck with working our any private use adjustments on expenses - that will be 100% then?

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Accountant A
02nd May 2012 16:06

reply

justsotax wrote:

@the black knight.....so i guess you report all of your clients who are tradesmen?....because i guess they all have taken cash at some point (no matter how small) and not disclosed it.

 

Its about using your professional judgement when considering the rules....per David it is quite clear you do not have to report it given the information we have.....but if you feel you cannot make the approrpiate decision then i guess you should go for the 'safe' option.....good luck with working our any private use adjustments on expenses - that will be 100% then?

 

That is slightly different is is not ? Cash is not in your face and not all tradesmen may be tax evaders (perhaps it's only 99% -- Joke !) , however you would be naive if you thought that was not going on, much as undeclared tips etc...and I would not want to be in front of a CPS Lawyer getting torn apart for not noticing he had a nice house on low earnings.

In this case the OP knows it is wrong but has to make a judgement call whether it is deliberate or not, writing a three page document to conclude an uncertain not deliberate for the benefit of an ex client and no fee ??? excuse me ?

You can bet the lawyer is going to say " I put it to you that you knew it was deliberate ? answer yes or no !"

All my clients understand where we set out our stall if they want an accountant that is dodgy I suggest we are not the right accountant for them, And no we don't do unrealistic business mileage claims etc ( a 90% claim is very unusual unless it can be justified) Just easy pickings for an inspector in an enquiry.

Are you really telling me you write a report supporting not reporting every time you spot a tax evasion issue ? The balance may fall in favour of a client rather than an ex client for example, depending on my view of his honesty ! However you look at it you can never be objective, independent or even have the faintest idea sometimes as the dishonest are also fairly adept at lying too !

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02nd May 2012 15:58

Check First

I seem to remember last year at this time the 'system' sent out repayments based on estimates or last years figures which turned out to be a training exercise that never got deleted. There were certainly a lot of repayments issued in error.

I think you first need to check with the client that they did submit a return, either themselves or with a new accountant. I would do this by phone and during the conversation mention the figures didn't quite look right. It could be just as simple as a typing erorr in that he missed the 2 out after the 1 and didn't notice.(The information you seem to have seen is only available when information has been entered through the Revenue's system, not when I look at returns where I used 3rd party software)

In which case you have laid the groundwork for correcting it for him or helping him in other ways in the future instead of just saying good riddance

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02nd May 2012 17:26

Its just about making a professional judgement...

thats it....nothing more nothing less.  No one is suggesting people do something dodgy....just be professional, use your experience, expertise and all available information to make a reasoned decision.  I would argue in this case that we simply haven't got enough information to make a descision....and actually by reporting the client you are implying they have commited a fraud.....what if the client has missed of a zero.....and he decided to sue you for costs if his life was turned over as a result.....do you feel you had enough info to make a 'reasoned' decision.

 

Just one other thing....if you did send a report for every case like the above, what would this suggest about your practice....the type of clients you attract.....   

 

 

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