A new client came to me today and said she was concerned her 11-12 tax return was wrong, as she thought she had a profit but her SA302 recently requested for mortgage purposes shows nil income.
Her 'accounts' consist of her own spreadsheet of expenses, nothing prepared by the 'accountant'.
The SA100 shows a loss of £83 with no tax paid. Having had a quick look at the return and her 'accounts' I can see the that the CAs were wrong and another expense was wrong (not reduced for personal use), but total errors would result in a profit of around £5-6,000 so below the PA. So, by correcting there would still be no tax to pay.
Am I right in thinking, that
a) As there would be no tax to pay, HMRC could not issue a penalty if we do not correct it as penalties are tax-geared and 100% of £0 extra tax to pay is £nil.
b) If she does not want to correct it, I would have no reason to do an AML report as she has made no criminal gain?
Whilst I agree the best thing to do would be to correct it and have it all 'tidy', it does seem a rather academic exercise and she does not really have the funds to want to pay me to re-do last year. Can I just start afresh with 12-13 and make sure it is 100% spot on?
Am I having a senior moment? Am I missing something here that would make us have to correct it?
Thanks
Replies (11)
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Surely as you are now aware that it is incorrect you need to point out to your client that it should be amended? You are within the time frame for amending 2011/12 so there will be no penalties & if, as you say, the income is below personal allowances, there will be no tax liability.
Will she be needing a mortgage in the next 2-3 years? Obviously a profit of £5k looks better than £0.
I'd question that
What is the benefit to a) the client and b) the treasury to do this rework? If the answers are a) none and b) none then refer to CIOT guidance:
"members should exercise judgement over whether the cost of remedying the error might exceed the tax involved. In the opinion of the professional bodies it is reasonable for a member to take no steps to advise HMRC of isolated errors where the tax effect is no more than minimal, say up to £200, as these will probably cost HMRC and the client more to process than they are worth to the Exchequer."
I think particularly in light of the fact the client can't/won't/doesn't want to pay you anyway, give the client the choice.
Probably not an issue but just check that your client and her husband are not claiming Working Tax Credit or Child Tax Credit as these may be affected if the tax return is refiled with a greater profit on them.
Other income based benefits may similarly be affected also.
Belt and braces and all that.