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If I understand it correctly Making Tax Digital is going to mean that quite a few taxpayers are taxed on a cash basis profit rather than an accruals profit.

If I understand it correctly an accountant who advises on tax avoidance could be subjected to huge penalties.

So if I advise my cash basis client to buy an asset or pay a creditor within an accounting period rather after it has ended will I be exposed to these penalties?

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By youngloch
26th Aug 2016 16:57

Penalties are aimed at those selling the tax avoidance schemes.

More to the point though the real danger is pushing the cash basis approach to a client as a preferred option which, unless they are genuinely a business with no debtors or creditors, has potential pitfalls.

All it takes is a "normal" recession to hit, or a clients customer to hit on difficult times and take an extra few months to pay. In that one year on cash basis yes profits fall but what about the next year when that customer pays up and debtors dramatically reduce and cash income soars pushing their profits into higher rate tax.......

That's the difficult conversation for someone who, based on a normal work pattern, may be in the £30k-ish profit band and is paying 40% tax suddenly because they took your advice.

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By TDRtax
26th Aug 2016 21:55

The cash basis being pushed with MTD is a joke. It does not, has never, and will never reflect the true trading position, and is just the first aspect of MTD that will lead to HMRC winning enquiries, regardless of whether there is any wrongdoing.

I personally felt it was a mistake when cash basis was offered and normalised to sub £15K T/O traders.

But as to your question, you aren't exposed to any risk yourself. All you are doing is advising on how to maximise, within the confines of HMRC accepted principals.

The penalty situation is aimed at convoluted schemes, not at obvious answers.

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