Feel like a right idiot. Was completing SAR for client who is employed and has one rental property. I work alone, took a phone call and then missed putting his PAYE coding notice into the software.
He made a loss on the rental property, calculation comes up as small refund due. With his PAYE coding, he owes tax.
I'm really upset with myself, as usually I double check everything before talking to the client. So careless. Fortunately the return is not submitted, but it is still not good.
Its on days like this that I feel like packing it in. Any advice on how to best approach this please?
Replies (22)
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Nobody's perfect
I always think that if I get it right 99.5% of the time, I will still do 2 wrong tax returns a year. This still seems too much to me but nobodies perfect!
Speak to them
Just pick up the phone and tell the client what has happened.
You could just read out what you put in your question it explains everything.
Lesson learnt don't break your own rules.
how much is involved?
Apologise and blind them with accounting science - tax periods, basis periods, payments on account etc or just say sorry I got it wrong. It helps if you use HMRC's own systems because all the calculations come with their logo on - so it looks as though they have calculated the tax due and as we all know it cannot therefore possibly be wrong.
Was he over taxed on the employment income? I assume so as you can't offset rental losses against employment income.
'Sorry' is a magic word
As long as you don't make a habit of it, apologising swiftly and completely does wonders. Maybe a small amount knocked off the bill as a goodwill gesture.
WS.
I don't understand
Why would you enter his PAYE coding notice into his tax return?
You enter his gross pay and tax actually deducted from his form P60 - it is irrelevant what the PAYE code was. Your software takes the gross pay (ignoring the net rental loss as it cannot be relieved against his other income), calculates the tax due, takes off whatever PAYE tax was deducted per his P60 and tells you the balance payable. How can that be wrong?
underpayment restriction?
Why would you enter his PAYE coding notice into his tax return?
You enter his gross pay and tax actually deducted from his form P60 - it is irrelevant what the PAYE code was. Your software takes the gross pay (ignoring the net rental loss as it cannot be relieved against his other income), calculates the tax due, takes off whatever PAYE tax was deducted per his P60 and tells you the balance payable. How can that be wrong?
I was wondering the same thing Euan - but then thought perhaps there is an underpayment restriction on the coding notice which would require an entry on the return. I'd be intrigued to know the answer!
Then, it depends ...
The PAYE coding notice was for an underpayment restriction, for £1500 relating to the property income
Are you saying that tax of £300 (20% of £1,500) was underpaid in an earlier tax year? I am puzzled that you mention that it was property income, as the source of the income does not matter - it is just the amount of tax underpaid. If so, then Yes - you should have included it in the tax calculation.
Or are you saying that HMRC estimated the net rental income for the current year would be £1,500 and that the client had asked for this to be coded out? If so, you would not enter the £1,500 into the current year's tax return. The additional PAYE tax paid as a result of reducing the PAYE code would pay the tax on £1,500 of net rental income. As it was a net rental loss, the additional PAYE tax would be refundable.
Honesty is the best policy...
The PAYE coding notice was for an underpayment restriction, for £1500 relating to the property income
Are you saying that tax of £300 (20% of £1,500) was underpaid in an earlier tax year?
Or are you saying that HMRC estimated the net rental income for the current year would be £1,500
There is also the 3rd option... rental income was underpaid by £150 (20% of £750) in the previous year and HMRC are assessing rental income at £150 for the current year?
Personally, I try and avoid clients paying through their tax code. I find it messy and confusing - especially to the client. Besides, it takes HMRC that long to update the tax coding that a change for the 2013/14 return will not be issued until the 2015/16 tax year!
As for giving the whole tax return preparation/ submission fee free, I would also advise against this. There are two main reasons: (i) it makes things seem much worse than they are - it's not as if you've actually filed the return and given the client a black mark in the HMRC copy book (ii) next year they'll be looking for every opportunity to reduce the fee or even extinguish them entirely ("after all, you did last year from free" and "you've made a mistake again by being £0.005 out in your rounding etc.).
In truth, we've all made mistakes and in the grand scheme of things, this is relatively (maybe extremely) minor. Own up and move on. If your client jumps ship because of it, I would be quite honest, you possibly don't need a client like that on your books.
The only other thing I'd add... if the property income made a profit last year and made a loss this year, are the two years correctly accounted for? Check the figures... if the property was rented for 12 months each year, the allowable costs should be pretty similar too. An amended return may actually be required for 2012/13.
no freeby
the tax is either payable or it isnt , just because you made a small error does not obviate their need to pay tax . also check what Euan has said , ok you need to put the underpayment in but surely that has already been taken into account in the year , anyway it relates to last year but doesnt actualy change the tax due for the year, its just a collection matter
Call HMRC
And ask if anything needs to go in boxes 7-9 or whatever they're called these days.
Tax code
Stop panicking.
The tax code ends up as irrelevant. Income for the year less personal allowance etc. = tax due less paid through PAYE or any other means.
I agree with previous comment.
Don't lose too much sleep over that.
Too hard on yourself!
My [***] up of the week was to email a client with an estimate of the IHT that would be due were they to fail to survive a PET by seven years and in the meantime the asset ceased to qualify for BPR.
Sent the frigging email, then realised that I had failed to take account of the related property rules and the shift from a control holding to a large "blocking" minority.
The exposure was about twice what I'd bargained ad resulted in a "sorry to mess you around but....." recovery job...
But hey, life's too short: I've given the client good planning advice overall.
Too hard on yourself
I spent a day this week attempting to help a sole practitioner in central London this week.
PAYE nonsense like this could drive someone mad.
Anyway I quit after a few hours and didn't want to be paid.
Just look at the "Opportunities" section of this site. It is full of would be accountants almost begging for some work.
Taken altogether, there is something going wrong. I think that competition has turned this professional into a mad free for all, where no one gets paid that much.
Be serious and run away from these people.
rammstein1
"I always think that if I get it right 99.5% of the time, I will still do 2 wrong tax returns a year. This still seems too much to me but nobodies perfect!"
Well said, maybe all of those of us working alone should use this as our mantra.
Even with the best systems and greatest care it is just too easy to make a mistake when working alone and answering the phone.
We all make mistakes
Interesting use of the plural for nobody, where the apostrophied version would suffice.
NO!
Apologise by all means but there is no justification for dropping or waiving the fee.