Hi All
I recently took on a new client, things are great. Once I received and reviewed the previous years tax comps I discover this large and prestigious chartered firm have dropped a clanger, a pretty big one. Claiming an expense which most of us would know is not claimable by a sole trader (but is claimable by a limited company)
So I have contacted the previous firm incase they are really clever and know some tax oddity that myself and my tax consultant do not. Sadly they don't, they have just made a big stinky mistake. It looks like it could have happened the previous year as well. (almost certainly will have) Tax underpaid could easily be £xx,xxx.
So, am I best to let my client know, have them make a formal complaint to firm, and let them fight it out?
Get the previous firm to amend both tax returns at their expense?
Advise the client to try and claim back any penalties and interest from the previous accountants?
The tax would have been paid if the comps were correct at the time. But their fees are huge each year, and to have messed up so badly, could the client claim a refund of their fees too?
Has any one got any good advice/ experience please? I would really appreciate some input.
Many thanks
Replies (16)
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If you must know
Appears to be amortisation of goodwill.
Personally I would let the old accountants sort the mess out and pay the interest and penalties.
The client's decision
Simply write to the firm invloved in a neutral tone stating the facts and inviting them to amend the previous returns.
At best, they are only on the hook for the interest and penalties and will most likely pay this without quibble as it will be under their PII excess.
It is up to your client to decide if they want to make a compaint and/or a refund of some of the fees. By all means, invite a reasonable offer in the letter but I would advise your client not to hold their breath. The firm may pay to make the whole matter go away but if they don't the process would be long, complicated & expensive.
Incidently, if the figures are so extensive, why is the client trading as a sole trader? This may be a separate area of complaint entirely.
Presumably ...
... there was not sufficient information on the return to alert HMRC to the fact that goodwill amortisation was being claimed?
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... there was not sufficient information on the return to alert HMRC to the fact that goodwill amortisation was being claimed?
bkd, may i ask where you are going with this line of questioning?
You may well ask
... there was not sufficient information on the return to alert HMRC to the fact that goodwill amortisation was being claimed?
bkd, may i ask where you are going with this line of questioning?
Discovery
Hypothetically, let's say the tax return(s) had contained a note to say that, in their opinion, the advisers believed that goodwill amortisation was deductible for a sole trader and so tax relief claimed. If HMRC failed to act on that, I'd forget about any returns now closed and worry about only those with open enquiry windows.
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... there was not sufficient information on the return to alert HMRC to the fact that goodwill amortisation was being claimed?
bkd, may i ask where you are going with this line of questioning?
Discovery
Hypothetically, let's say the tax return(s) had contained a note to say that, in their opinion, the advisers believed that goodwill amortisation was deductible for a sole trader and so tax relief claimed. If HMRC failed to act on that, I'd forget about any returns now closed and worry about only those with open enquiry windows.
mmm. is it enough to say that "i think this should get tax relief" ?
I don't think that you can avoid a discovery assessment just by saying that. particularly where there is legislation that says your treatment is fundamentally wrong as a point of law.
Discovery
mmm. is it enough to say that "i think this should get tax relief" ?
I don't think that you can avoid a discovery assessment just by saying that. particularly where there is legislation that says your treatment is fundamentally wrong as a point of law.
In my hypothesis, I was suggesting more than the brief words quoted above. Even better would have been, "Contrary to legislation and HMRC guidance, it is our opinion ........"
Provided you've given sufficient information to prompt HMRC that the tax return may be wrong, they can't get you under discovery, no matter how fundamental the "error".
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We will need to look at incorporation! It's definitely worth doing for this client.
If you incorporate now the g/w is being acquired from a connected person so no CT deduction now in any case.
Relief
If you incorporate now the g/w is being acquired from a connected person so no CT deduction now in any case.
Unless ... the trade commenced on or after April 2002.
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I had the understanding that even though the goodwill is purchased from a connected person, a claim can be made for the goodwill amortisation by a company.
only if the g/w was created post 1/4/02. as bkd refers above.
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i understand the point you are making but I can see HMRC arguing this till the death and a judge agreeing with them on some basis of equity.
Out of interest have you seen any cases where adequate disclosure avoided a discovery assessment ?
There was one a little while ago where the taxpayer made very substantial disclosure along the lines of "we think this is dodgy and HMRC will probably not agree with this" and they (the taxpayer) still lost.
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Maybe this is the elusive intangible "know how", to which Capital Allowances can apply for a Sole Trader. It's worth seeking more clarification as it may not all be as it seems.