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Provisional Tax Returns

I have a few clients with outstanding 2010/2011 Tax Returns, for whom the accounts for the relevant basis period have still not been prepared.

In most cases the reason for the delay in preparing the accounts is long-overdue accountancy fees.

Not all of the clients in question are "D class" clients - some have simply fallen into financial difficulties as a result of prevailing economic conditions and are extremely embarrassed at the fact that they have been unable to settle my fees.

It is my understanding that, if a client in this situation fails to submit a Tax Return online before 1 May 2012, penalties of £10 per day will start to accrue.

I do not wish to prepare the outstanding accounts until my fees for previous work have been settled, in part at least. However, I do not mind trying to help some of these clients to prepare and submit provisional Tax Returns, although I would not like to invest too much time in such (unpaid) work.

Is it acceptable to put on the Tax Return completely estimated round-sum figures for income and expenditure, together with an explanation that the figures are provisional in the absence of the necessary accounts, which have not yet been prepared owing to financial difficulties? I am aware that the provisional Tax Return would have to be amended in due course and that failure to file an amended Tax Return should, in theory at least, lead HMRC to initiate an enquiry. Whilst the suggested action may lead to an increased risk of an HMRC enquiry, would it prevent the imposition of daily penalties? If so, what do Aweb members think of this strategy? Is it asking for trouble?

I look forward to any guidance and comments.

Many thanks.

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Provisional Returns

It can sometimes lead to enquiries when the returns (or even before) the returns are ultimately amended.

I know some colleagues who sent in estimated figures and the amended ones were never done or submitted. HMRC never picked up on it and it was just left as is. Great way of saving tax

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some thoughts

I won two clients where the previous accountant had put in estimates then completly forgot to update them.  In one case no problem, the actuals were close to the estimates.

But in the other the estimate of £30k profit was replaced by £59k of actuals.  The client had completely forgotten about the estimate done nearly 2 years beforehand, so the news of massive back tax and higher payments on account did not go down well.

I've put in a few estimated ones for 2010-11 to avoid the £100 fines.  In all cases not everything was estimated, for example most clients have a pretty good idea of sales / takings to within £1,000.

In these cases I have used the notes to spell out exactly what information was missing - "two months' bank statements were estimated pending getting copy statements from the bank" for example.  Nobody in HMRC reads these, but should I get an enquiry I at least have firm evidence that HMRC were made aware on these returns of the extent of any estimates.

I'd be interested in what other people are doing.  Let's face it, no-one is going to let a client run up £10 a day fines from 1 May if they can possibly avoid it.

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Have a look at

SAM121190 Provisional or estimated figures: individuals

And perhaps take some note of the comment therein:

"Where it appears that a particular agent is filing a significant proportion of returns with provisional or estimated figures, you should inform the Compliance Manager."

Hope that the return(s) are not rejected following Manual Instructions @ SAM121260 ‘Unsatisfactory Individuals returns’

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I wouldnt

I just cant see how filing a provisional return at this stage is acceptable except for the most extreme of cases.

By this stage, the client has had nearly a year to obtain the information to have the tax returns prepared.  HMRC dont care if he cant afford to pay his accountant to do them.

Provisional Returns, I would say, are really meant for where the information isn't availble at the due date for filing the Tax Return, e.g. a first-year accounting period where the basis period is up to 5th April.

If the client was to file the return with provisional figures, I could accept that, but for an accountant to pluck figures out of the air and file a tax return (albeit with clients) approval, I just see that as asking for trouble and obviously so do HMRC, as per ACDWebbs comment above.

 

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I sent one provisional return in this year

and updated it with the correct numbers a week or so after. As it happened the actuals resulted in a slightly smaller tax charge which the client settled in full by mid January. However, I wouldn't generally let my clients know that submittng an estimate is possible!

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Maybe 10 years ago it was a high risk issue...but now....

not so sure.

 

I am aware of a recent case where accounts hadn't been finalised for a tax return 5 years ago.  When this became apparent the amended figures went in - as it happened slightly lower than those declared (resulting in a very small repayment).  The revenue did not accept the amendment saying it was out of time.....not a big issue.....but what if it had been a large liability?.....I can only presume then in those circumstances they would have to raise an inquiry/discovery to get the tax back.....bizarre!

 

I would agree - using estimates is not perfect.....but in the right circumstances and using some logic I don't see any wrong in it......as long as the client understands the implications. 

 

 

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Not acting in yours or the clients best interests??

I suppose these clients are relying on you and you have the information but will not prepare the accounts and returns until they pay you outstanding fees. I can understand but what next?

I also suppose this problem of outstanding accountancy fees is not new so its just dragging on. You cannot submit provisional returns in these circumstances, non payment of accountancy fees is not an excuse for going down that route. You are just the agent, the client is responsible for filing.

I think you should have resigned from these jobs, the longer it goes on the worse it will be for you (and the "client")

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Resigning is the easy option

Why would you want to resign from clients with difficulties? This is the easy option for me.

Of course if they are not communicating and generally unhelpful - Yes walk away, but where they have genuine difficulties try and help them. 

Past experience has taught me to often over estimate the income then all of sudden they come to the party so to speak, pay your fees and work with you closer. We have had a change of policy on estimates and will do a lot less next year.

They often just don't understand. So in summary I would take case on its merits.

Good luick !

 

 

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