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A What to Do for the Best Question

Client has Undisclosed Corporation Tax Profits

Client asked us to prepare his self employed annual accounts from 1st April 2016. He had traded under the umbrella of a Ltd company up to and including 31/03/16  but the Ltd company had been voluntarily struck off as at that date.

Advised us that he had recently divorced and his previous accountant was a friend of his ex-wife's ; and he didn't want to continue with her services.

Sent out a professional ettiquette to previous accountant. She advised "there are no working papers or b/fwd assets etc. company has been struck off.

Then the books came in, as prepared by the Client's very elderly Mother. The Ltd company "traded" till August 2016. Bank active, Sales invoices and payments issued and receipted. The acting accountant billed for payroll, bookkeeping  and accounts in late June 2016.

The sales invoices appear to be "audit"  marked (or marked by a professional to be more accurate).

I have a copy of the strike off petition prepared by the previous accountant in July 2016.

Dormancy was not extant at the point of the petition (not least by the previous accountant's own bills and payments in June 2016).

So what to do ?

I've advised my client that the Company was struck off incorrectly.

I telephoned the Corporation tax office (in the presence of the client, as I couldn't lodge a 64-8) and was advised that they weren't interested.Company struck off. No accounts or returns due.

There's approx 10K of company sales, and the Ltd company suffered CIS deductions on approx 40% of the sales. Not a tremendous amount, but I believe I have covered my Client's best interests.

Contacted (again) the previous accountant .... and she sent over FA schedules etc. and was wonder struck regarding dormancy, and tripping over herself to accomodate my previous request for opening balances. for the new trade.

After some considerable consideration, my advise to the Client is to ignore the sales and income to August 2016 from the Ltd Company; but reserve the potential Tax Liability. We've tried to disclose it (I have file notes and telecon sheets re the conversations).

Insure against potential tax investigation

Move against the previous accountant if the s*** hits the fan.

I would never normally advocate action against another Accountant; but she doesn't have a clue. She's ACMA, but the accounts she eventually sent to me were 23 pages. She was using some sort of software and there were 11 pages of "insert Director name", obviously little knowledge of practice.

I just want a bit of reassurance that I'm taking appropriate action in this case, and for this Client.

 

Many Thanks in anticipation of all responses.

 

 

 

 

Replies

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16th Jan 2018 20:30

You are reserving a tax liability for a company that has been struck off?
The. Company. Is. No. More.
It.is.an.ex.company.

I hope you are not charging the client for wasting his time.

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to Tim Vane
17th Jan 2018 16:52

Tim Vane wrote:

You are reserving a tax liability for a company that has been struck off?
The. Company. Is. No. More.
It.is.an.ex.company.

Tim, this is a genuine question. If the Ltd Company (that was dissolved 31/3/16) continued to trade until August 2016 is it possible that HMRC could pursue tax on that? I'm thinking (possibly incorrectly) that the Director could be personally liable.

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16th Jan 2018 21:22

I agree - let bygones be bygones & just be pleased that you were never engaged by the company and is was dissolved before your first year’s tax return.

And ne’er speak of it again.

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By Gmb
18th Jan 2018 15:20

Tim Van
The Client is Sole Director of the incorrectly dissolved Company . He therefore has undisclosed and un-taxed income from same.
You bet your bottom dollar that I've charged for my time in considering this circumstance.
There is a RISK to my client from the incorrect actions undertaken by the previous accountant.
I don't sweep things under the carpet, and this ain't my first rodeo.
I've been in practice for 31 years and never had an investigation (probably famous last words !!), because I produce accurate returns and accurate accounts. To the best of my ability.
Your reply was unhelpful, disparaging and very cavalier in your attitude to Clients' paying the correct and appropriate amounts of tax.
As an accountant I have estimated and advised my Client of the potential liability. I don't have a Gung-Ho approach to Clients, Tax or my professional responsibilities as an accountant.

Thank you legerman. The Client can indeed be persued. The balance sheet items can only be discharged as Dividends.... no adjustment to Director's Loan available.No Company. No CT600. No Dividends. Hence undisclosed income.
Thank you "at least is sound". This is my approach.

Many thanks for the constructive responses.

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