Should I accept previous accountants view?

Should I accept previous accountants view?

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Colleagues, can you please help?

I am preparing a set of annual accounts for a small comapny and the previous accountant has posted very generous allowances and reliefs into the previous set of accounts, (one example of wehich is...e.g. £50 per month working from home expenses in the previous set of accounts).  This is materially higher than the HMRC £3pw guidance and there is no backup or evidence to substantiate this calculation.  How would you proceed?  Should I ignore this and assume the previous accountants view is correct, or should I attempt to reverse these allowances in the set of accounts I am preparing, which will obviously increase the corporation tax for my client this year, will they will not be expecting?

Replies (17)

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By petersaxton
23rd Jan 2010 22:23

Don't change previous years

I don't think you should change assumptions made by the previous accountant. In the accounts that you are preparing you should put what you think is right. You could explain to the client that HMRC have introduced new guidelines recently.

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By welsh_dragon
23rd Jan 2010 23:10

"£50 per month working from home expenses "

 

I assume by this that they are using part of their home as an office?  That being so £50 a month is probably quite a reasonable figure to claim.  Assuming a room is set aside as an office it has to be heated, they probably have internet, rates must be paid etc.  I doubt you would get much of an arguement from HMRC at £50/month. 

Presumably the previous accountant's figures were submitted - and accepted?

Good luck explaining to the client why you havent claimed the same as previous years without HMRC even having questioned those figures. In fact, by drastically reducing the amounts claimed, you run the risk of triggering the interest of some nosey Inspector looking for a quick easy investigation to earn himself a few Brownie points.

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By petersaxton
24th Jan 2010 05:33

Consider reality not assumptions

"I assume by this that they are using part of their home as an office?"

Where did you get that from? The OP indicated there is no evidence to substantiate the £50 per month. It seems very round sum to me. The £3 a week is what HMRC allow when all that is done from home is a small amount of paperwork such as writing up the books.

It all depends on what is the level of home working.

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By skylarking
24th Jan 2010 10:54

Go by your own rules

I wouldn't blindly follow the previous accountant's method, but I wouldn't go to the trouble of making a prior year adjustment on something that is a debateable area.

Another correspondent may have confused what you are trying to do with the rules for self-employment.

Your options are really calculating a fair cost on the basis of incremental costs incurred or using £3 a week.

For the future, though, a licence agreement whereby the company rents a room in the director's residence at a market rate might be the best option. This will need to be disclosed on the director's tax return under land and property, but a fair proportion of fixed costs including mortgage interest and council tax may offset much if not all of the rental income.

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By valentino rossi
24th Jan 2010 11:40

Agree with sky;arking

£3 a week is the Revenue rate for employees that work at home and so is therefore applicable to directors of small companies.

Obviously this is much lower than the probable cost that would be allowable as a self-employed person.

Therefor grant the licence to the company for a market rent and disclose of directors return with similar expenses which will probably create a nil position. If they have other rental profits/losses you can include in the same business so netting off but I wouldn't recommend creating a huge loss with the licence to offset rental profits from elsewhere as the Revenue may question the reality of the licence.

There have been a few articles on this issue and creating a licence which you may want to look up. One was in taxation a couple of years ago and is still useful.

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By skylarking
24th Jan 2010 12:05

Rossi

Have you been away? Don't see you around much anymore.

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By welsh_dragon
24th Jan 2010 12:17

Take care before altering things
£3 a week is the Revenue rate for employees that work at home and so is therefore applicable to directors of small companies.

Obviously this is much lower than the probable cost that would be allowable as a self-employed person.

Therefor grant the licence to the company for a market rent and disclose of directors return with similar expenses which will probably create a nil position. If they have other rental profits/losses you can include in the same business so netting off but I wouldn't recommend creating a huge loss with the licence to offset rental profits from elsewhere as the Revenue may question the reality of the licence.

There have been a few articles on this issue and creating a licence which you may want to look up. One was in taxation a couple of years ago and is still useful.

 

Posted by valentino rossi on Sun, 24/01/2010 - 11:40

 

 

A great number of small companies have the home of the directors as the registered office. That being the case claims for use of home as office are broadly in line with those for any other self employed person in that one room is used as an office and therefore needed to be heated etc.

Unless you have reason to believe the previous accountant was incompitent then you should certainly not amend previous years, and, should start from the premise that if he allowed £50/month he must have had a reason for doing so - what was it. 

As previously said - beware of drastically changing things as nothing will trigger an investigation faster that a sudden unexplained change in results. 

 

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By petersaxton
24th Jan 2010 12:20

The level of use of the home needs to be understood

The OP said £50 per month seemed generous. If the home use of a director consisted of a room then I wouldn't think £50 seemed generous.

 

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By valentino rossi
24th Jan 2010 12:34

Skylarking

Been too busy to post with the time of year and all that, as you can tell by my being in the office on a Sunday.

Also got bored of telling people that they should be asking their, or getting an accountant.

On the use of home I have seen Revenue Officers query deductions that are above their approved rates. One was for £260 (£5 per week). He was told it was an estimate and they did give up on it although I'm not sure if this was simply because they found bigger things to look into within the accounts than this deduction. 

The issue with employees is that they can only have a deduction for the cost of the additional expenses incurred as a result of working from home. ie gas and electric for that one room. Even in the era of fuel poverty I can't see how you could say you used £50 a month heating a room for 7.5 hours a day 5 days a week. 

The Revenue manuals are quite clear on this subject which is why the licence arrangement is an easy way to get round the difference in treatment, particularly for those that have incorporated a business and suddenly find that their use of home is now significantly lower.

 

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By skylarking
24th Jan 2010 12:36

Triggering an investigation

Does anyone really think that reducing use of home as office from £600 to £156 will trigger an investigation?

I don't. 

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By welsh_dragon
24th Jan 2010 12:44

Really ?

Which simply shows your lack of experience.

You reduce the figures and any over zealous tax officer will be reopening previous years so fast your client will wonder what hit him. 

Of course they dont say "excuse me sir we think you underclaimed your expenses" - but they WILL say "this amounts to an admission that you overclaimed in the past". And your unexplained reduction is just the new information they need to justify it.

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By skylarking
24th Jan 2010 13:06

W_D

You can't possibly have any idea how much experience I have. Agree to disagree if you must, but you shouldn't seek to undermine a comment made honestly by making a wild assumption on 'experience'.

 

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By User deleted
24th Jan 2010 15:51

provocation

Your postings very clearly show you were not "interested" in others views, but merely interested in provoking others.

 

 

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By petersaxton
24th Jan 2010 19:20

No investigation

I don't think that reducing allowable expenditure by a few hundred pounds will trigger an investigation. I'm sure HMRC can find better use for their resources. There can be many reasons for reduced claims such as less use of home space.

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By User deleted
25th Jan 2010 09:37

Another thread

at risk of being ruined by our two resident schoolchildren

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Giraffe
By Luke
25th Jan 2010 10:30

You shouldn't just accept what the previous accountant said, you

You can't just accept what the previous accountant thought.  Is he/she better than you?? Why would they know better?

You need to be able to feel you could justify your treatment should it be queried. "That's what the last bloke did" is not to me a suitable answer to an enquiry.

So find out/ work out upon what basis the last accountant charged £50pm to make sure you haven't missed anything, and then make your own judgement about what should be claimed.

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By Becky Midgley
25th Jan 2010 12:28

A warning to all members:

If you deliberately inflame members you will be temporarily banned.  If you create and use a duplicate account, you will be banned.  If you cannot act professionally on this Forum, you will be banned.

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