Previous firm drop a clanger - any good advice?

Previous firm drop a clanger - any good advice?

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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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By Jakarmi
22nd Aug 2012 12:25

Expense

Out of interest what is the expense they have claimed?

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Replying to Wanderer:
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By Sloane Walker
22nd Aug 2012 12:39

Amortisation of goodwill - sole trader

I was trying not to give away too much :o)

Amortisation of goodwill, they claimed it on a sole traders tax return!  You can do that for a limited company but not for a sole trader.

 

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By hkfinancials
22nd Aug 2012 12:38

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.

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By Roland195
22nd Aug 2012 12:40

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.

 

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By User deleted
22nd Aug 2012 14:44

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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Replying to legerman:
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By blok
22nd Aug 2012 15:23

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BKD wrote:

... 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?

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Replying to Portia Nina Levin:
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By User deleted
22nd Aug 2012 15:29

You may well ask

blok wrote:

BKD wrote:

... 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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Replying to tjw:
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By blok
22nd Aug 2012 16:37

.

BKD wrote:

blok wrote:

BKD wrote:

... 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.

 

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Replying to Portia Nina Levin:
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By User deleted
22nd Aug 2012 17:03

Discovery

blok wrote:

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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By Sloane Walker
22nd Aug 2012 15:06

Just a figure on the return

Hi Thanks for your comments so far.

Yes it was just a figure on the return, nothing to alert HMRC.

We will need to look at incorporation!  It's definitely worth doing for this client.

 

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Replying to jonibarnes:
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By blok
22nd Aug 2012 15:22

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Sloane Walker wrote:

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.

 

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Replying to JSinden:
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By User deleted
22nd Aug 2012 15:25

Relief

blok wrote:

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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Replying to JSinden:
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By Sloane Walker
22nd Aug 2012 15:27

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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. 

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Replying to andybailey:
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By blok
22nd Aug 2012 16:32

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Sloane Walker wrote:

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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By blok
22nd Aug 2012 17:18

.

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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By cparker87
24th Aug 2012 11:41

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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.

http://www.hmrc.gov.uk/manuals/camanual/CA70020.htm

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