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Revenue got it wrong

Consider this situation:

The Revenue have amended a tax calculation resulting in a sizeable refund.

On checking it is found that they have ignored a lump of income which was submitted in the return.

Before we could inform them of the error the client has seen it and told us not to correct it, he will take the chance that they won't notice!!

Very uncomfortable about this - what should be done?

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By occca
07th Jul 2009 18:21

Fraud
Sorry but this is fraud - you can't just ignore it

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By snopes
07th Jul 2009 19:08

Actually...
...more like theft than fraud. So it should be obvious what you have to do even without asking David Winch.

ebenezer cuckpowder

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07th Jul 2009 21:08

if
client won't allow you to point out the error you have a duty to resign from the engagement.

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By Anonymous
07th Jul 2009 21:49

As I thought
Thank you for your comments, resigning is in process as we speak!

I can't believe the client has put us in that position, should we still point out the mistake to the Revenue even though it's against the client's wishes? I wish they hadn't amended a correct return in the first place!!!!

I'm sure it's covered under the MLR as a mistake is known and not been corrected so should be reported as well.

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08th Jul 2009 00:57

why not.............
amend return and advise client tax office has corrected the processing.

Ned Ludd

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08th Jul 2009 09:45

My engagement letter states that Revenue errors will be correcte
and I think from memory the Theft Act means you have to correct the error whether resigning or not. The client cannot complain about you without making it clear he wished you to be a party to dishonesty.

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Not to sound like a textbook...
... but if I remember correctly the stock ATT exam question which is similar to your situation has the stock answer:
- Insist to client to declare or you will resign. Point out HMRC find resigning accountants of great interest in deciding who to investigate
- If they refuse then resign
- Contact HMRC to say you are no longer acting but do not say why
- Do all the usual ML malarky

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By Anonymous
08th Jul 2009 15:52

Where is the Theft and where is the Fraud
I am sorry but I cannot see a theft or fraud.

The client has to fill in his self assessment which he has done. The Revenue amended the Return (with no authority - it is SELF assessment). The client is under no duty to inform the Revenue of their mistake he has done exactly what he should have and filed his Self Assessment therfore no theft or fraud.

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By snopes
08th Jul 2009 16:44

The previous respondent
....sounds like he is a Member of Parliament - it is OK to keep money that you know is not yours because you have followed all the rules (except the one about being honest!)

ebenezer cuckpowder

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08th Jul 2009 17:17

This might help
If you don't have a professional body to guide you, you can check on the advice on the ICAEW website which is accessible (and relevant) to non members.

http://www.icaew.com/index.cfm/route/162831/icaew_ga/Members/Member_supp...

The relevant subsection is 5. HM REVENUE AND CUSTOMS ERRORS, found on page 468. It is very thorough.

Kind regards

Shirley Martin

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By mwngiol
09th Jul 2009 11:09

.
"The client is under no duty to inform the Revenue of their mistake"

Tell that to the MLR police!

Seriously though, once he is aware of the mistake then he is under duty to inform them and pay the money back.

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By Anonymous
09th Jul 2009 13:29

I have to report HMRC for Theft
I Previously posted "Where is the Theft and where is the Fraud" - I wish a default name box would come up.

This morning I have seen a new client who wanted me to check his tax return for 2007/08 as he now believes that he has paid to much tax. Which he has, he filled in his employment details incorrectly on his tax return. HMRC received the correct P14s from his employer and therefore know that to much tax has been paid. Surely if the OP is theft then HMRC are also committing theft.

John

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By snopes
09th Jul 2009 15:10

Just like...
...the MPs he seems so closely to resemble in character, the previous respondent is trying to be clever in defending the indefensible.

The point about the MPs and the OP's client is that they were being dishonest. The OP's client knows he has received an over-payment so that he knows the money does not belong to him but still he wants to hang on to it in the hope that HMRC will not notice their error. That is dishonest.

In contrast, HMRC do not knowingly retain over-payments of tax once they come to their attention. So there is no dishonesty involved.

Theft requires dishonesty and that is the difference between the two cases.

ebenezer cuckpowder

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By Anonymous
09th Jul 2009 15:33

HMRC do know of error
It is funny that in circumstances where it is the other way round ie that the error on the self assessment return results in an underpayment in tax then HMRC used to enquire in to the return or now just correct it. Therefore they must know of the error if it is in the taxpayers favour.

Also how can a none action be theft. I stole something by doing nothing!

Theft is the dishonest appropriation of property - again how can you dishonestly appropiate something by doing the correct thing of filing your tax return correctly.

John

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By snopes
09th Jul 2009 16:35

Read
...sections 1 - 4 of the Theft Act 1968 from which it has always been clear that theft can include passive appropriation of another's property.

There are sins of omission as well as sins of comission.

If you need further advice on this matter write to your MP.

ebenezer cuckpowder

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By Anonymous
10th Jul 2009 15:44

Thank you Ebenezor now I must resign from half of my clients.
Half of my clients have credit balances on their sales ledger when they have been overpaid by clients. They have obviously thieved this money by their none action of returning it. Do I need to do a MLR and resign from acting from them or is it OK because it is not HMRC.

Secondly why is HMRC's none action not theft - they do know that my client has overpaid tax by putting the known wrong figures on his tax return.

John

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By mwngiol
10th Jul 2009 16:27

John
Look at it from a different viewpoint - how many times have you read about people finding deposits in their bank accounts due to a bank error, then spending that money in the knowledge that it isn't theirs. If they can't pay it back they get prosecuted because it's theft.
Exactly the same principle applies here.
Now, if the client points out the mistake but HMRC insist that they are right, and he spends the money, and they subsequently change their mind then you may have a point.

Iwan Evans

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