Anonymous
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A right sorry mess to inherit!

Client has given themselves a tax bill out of nothing.

A and B own a Ltd company 50:50 - InvestCo.

A owns another company 100% - PropertyCo.

A is owed £50,000 from InvestCo.

InvestCo loans £50,000 to PropertyCo.

A withdraws £50,000 from PropertyCo.

 

Year 1 (30/06/2017): A agrees to w/o the £50,000 he is owed by InvestCo – creating a loan relationship credit in InvestCo which is taxed at 19% - £9,500 CT bill.

Year 2 (30/06/2018) PropertyCo agrees to w/o the £50,000 it is owed by A – creating a £50,000 deemed dividend for A, HR tax payer so £16,500 IT bill.

Year 3, A and B decide they need an accountant who discovers the above transactions have taken place (with meeting minutes to back them up) and the appropriate CT bill hasn’t been paid (the IT charge falls into 2018/19).

By not understanding what they were doing, A has essentially landed themselves with a tax bill of £26,000 to come back to the same place they were in before they started, i.e. having £50,000 in their bank.

(Not the actual figures but not far from what has happened)

Would it be unethical for a document to be produced now that basically says that all 3 agree to offset the amounts owed to each other, giving A back his £50,000 without the accompanying tax bills?

The meeting notes may get misplaced…

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20th Feb 2019 14:48

No, it is not.

This one might run.

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20th Feb 2019 16:02

I bet they moan about your modest fee for sorting this one out - if you can

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20th Feb 2019 17:24

Sounds like a good way to make friends with the client and to make enemies of the rest of the world.

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21st Feb 2019 07:21

Wolf?

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to Tax Dragon
21st Feb 2019 10:01

You called Dragon?

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21st Feb 2019 08:32

No need for the anon post, although it may mean the difference between 30&40 posts.

Unethical? Yes
Practical? Yes
Will AndyP slate me for this next answer? Yes
Would I do it? Yes. Something like ... explaining the 2 different hypothetical scenarios, state that if there was paperwork then you would have to go with that outcome. Ask if there is paperwork or if they need you to draw something up & ask them to confirm the interco write-off situation. Then charge a decent ‘CoSec’ fee.

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21st Feb 2019 10:02

Weren't shredders invented for just such occasions?

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to Lone_Wolf
21st Feb 2019 10:20

I knew you wouldn't let me down.

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to Tax Dragon
21st Feb 2019 13:00

I aim to please. I usually miss though...

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21st Feb 2019 10:24

What about self-assessing Ramsay (and concluding that all those intervening steps can be ignored)?

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21st Feb 2019 11:11

I wouldn't touch it with the proverbial bargepole or take on the clients who needed to do this and "Dear John" any client who wanted to do this.
But then all I want is an easy life.

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