Anyone noticed HMRC dividends declaration flaw?

Dividends not declared in director's SA account

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Hi all

We have a client who is the sole director and shareholder of a limited company for which we complete the accounts. However, the director has been filing his own self assessment returns. Each year we provide the client with the dividends figure he needs to declare in his tax return in writing. We have now been asked by the client to start filing his tax returns going forward. Upon review of his previous years self assessment accounts, we can see that he has not been declaring the dividends at all. 

We have informed him of this and that we would like to amend his previous years tax returns to reflect the correct figures. However, he is against this idea since HMRC have not picked up on this he does not see a reason why he needs to amend it. He is happy for us to declare the current year's dividends from this year onwards but does not want us to amend the previous years figures since HMRC have spotted this error. I can understand where the client is coming from as I can see a clear flaw in HMRC's systems.

We have noticed that the CT600 and attached accounts for micro entity and small company's do not show a seperate entry with the total dividends figure. (Attaching a statement of changes in equity is optional and we currently do not submit this). Therefore, HMRC would not easily pick up on this error unless they enquire into the director's self assessment tax return.

Has anybody else noticed this flaw in HMRC's system. The director can potentially get away with not declaring the dividends from his company. Is there something that I'm missing here in relation to submitting dividends figures to HMRC as there doesn't seem to be a requirement to show this seperately in the CT600/statutory accounts?

Replies (24)

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By Kevin Kavanagh
05th Feb 2020 16:12

Clearly it does indicate a 'flaw' in that there's no system attempting to reconcile dividends included in the company accounts with amounts declared on the shareholders' tax returns. But I would think more important is how you intend to deal with what's happened - surely you're not intending to agree to your client's desire to continue to under-declare his taxable income?

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paddle steamer
By DJKL
05th Feb 2020 16:18

SAR looks like it may be needed, my advice is try to get your advice in writing to the client.

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By Cloudcounter
05th Feb 2020 16:19

It doesn't take ten seconds to work out the dividends from a set of FRS105 accounts, so if HMRC were interested, they could easily do it. (Yes, there are rare occasions when it might be more difficult.)

There is a flaw in your client's thinking in that HMRC might take an interest in his personal tax return if he appears to be existing on a salary of £8,000 a year

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By susanreed
05th Feb 2020 16:19

My suggestion is to stop acting for this client if he refuses to declare his income. Make him aware that not declaring income is illegal irrespective of any HMRC cross referencing issues!

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Lone Wolf
By Lone_Wolf
05th Feb 2020 16:27

So your client is evading tax, and you can understand where he's coming from...

You do realise we have a SELF ASSESSMENT system, in which a taxpayer is expected to be honest. Not declaring income on a return, and then justifying it to yourself by saying "But HMRC have a flaw in how they catch me" doesn't quite work.

Are you a member of a professional body? Could get yourself into a sticky situation if they picked up on this.

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By legerman
05th Feb 2020 16:35

It is for the client to declare dividends as part of his income, not for HMRC to check it. It's called self assessment for a reason, so I can't see where there's a flaw.

Personally I would inform the client that it is tax evasion and if he still insists he doesn't want you to declare previous dividends, then file his current return and make a SAR.

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By frankfx
05th Feb 2020 16:53

Ask your client to read your engagement letter.

Ask him to ( re )read the signature declaration on page 8 of the SATR.

You as an accountant are not alone.
We are a band of brothers just ensuring compliant behaviour in line with widespread practice.

The client needs to put his brain in gear and accept reality.

Expecting the State, ,HMRC, to invest tax payer resources to reconcile everything is absurd.

Does he have costly over- engineered systems and processes in his own business?

No! That's why there is a profit to pay dividends.

Explaining all the above to the client will probably be at a financial loss to you.

Good luck.

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By Wanderer
05th Feb 2020 17:06

Patss wrote:

Upon review of his previous years self assessment accounts, we can see that he has not been declaring the dividends at all. 

We have informed him of this and that we would like to amend his previous years tax returns to reflect the correct figures. However, he is against this idea since HMRC have not picked up on this he does not see a reason why he needs to amend it. He is happy for us to declare the current year's dividends from this year onwards but does not want us to amend the previous years figures since HMRC have spotted this error.

Disengage & SAR.
Patss wrote:
I can understand where the client is coming from
I can't.
Patss wrote:
as I can see a clear flaw in HMRC's systems.

I can't.
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Replying to Wanderer:
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By KD1182
10th Feb 2020 17:44

You can't see a flaw in their systems? Get glasses mate.

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Replying to KD1182:
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By Wanderer
10th Feb 2020 19:01

KD1182 wrote:

You can't see a flaw in their systems? Get glasses mate.

Don't need em, mate.
The only 'flaw' in the system is the expectation that people should act with honesty and integrity.
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By SXGuy
05th Feb 2020 17:11

Hmrc won't know what dividends have been paid unless they are declared so what magical wand do you think they have?

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By Wanderer
05th Feb 2020 17:13

Mmm, looks like you've been here before:-
Client does not want to resubmit incorrect SA rtn
https://www.accountingweb.co.uk/any-answers/client-does-not-want-to-resu...

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By fawltybasil2575
05th Feb 2020 17:25

@ Patss (OP).

Your question says:-

"Each year we provide the client with the dividends figure he needs to declare in his tax return in writing", but you then say that :-

"we can see that he has not been declaring the dividends at all."

Hence the question which I am compelled to ask is this.

When you notified him that he had been omitting all dividends from his Tax Returns, you would clearly have asked him WHY he had omitted those Dividends consistently, in the knowledge that (as is almost certainly implied in your question) he had underpaid Income Tax each year. What answer did he give to that question ?

You then say that:-

"I can understand where the client is coming from" (on the basis that HMRC would be unlikely to find out about the tax underpayments). This implies that you did NOT immediately notify him that HMRC must be promptly made aware of the omissions: such was a far too weak approach to this matter.

Whilst a mildly interesting theoretical question is raised by you, re a perceived "flaw", such question pales into insignificance when measured against the very serious "error" (or potentially fraudulent conduct) of the client.

With respect of course, your priorities are wrong, and you must adopt a much firmer and professional approach to your client.

Basil.

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By Wanderer
05th Feb 2020 18:38

I've found another flaw in the system.
As far as I can see I can put any figure I like on my tax return for my income and HMRC doesn't check this back to the firm's accounts, nor check it to our bank statements nor cross check it to what clients pay me. I've worked out I can do similar on expenses and they don't cross check this with what I pay my suppliers and staff. HMRC would not easily pick up on this unless they enquire into the my self assessment tax return.
I'm therefore thinking of missing out a whole chunk of income when I do my next tax return. Now, ignoring theft, false accounting, tax evasion, money laundering, professional and personal integrity, I think I'll get away with it. Patts can you see where I'm coming from?

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By bettybobbymeggie
05th Feb 2020 18:52

I think Patss has left the building.

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By Tim Vane
06th Feb 2020 02:44

I tell all my clients that it’s fine to omit anything that HMRC don’t already know about. It’s all totally ok since obviously if HMRC don’t check it then that’s their look out.

Get a grip mate.

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Replying to Tim Vane:
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By KD1182
10th Feb 2020 17:48

The implication is that the OP advised them to omit that. Which they didn't, based off their post.

Sarcasm is the lowest form of wit...Judging by your usual comment history, I now understand why you revert to it so frequently. You appear incapable of adding anything constructive to the community.

Get a life mate.

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By meadowsaw227
06th Feb 2020 10:33

Whilst agreeing with all the previous answers I might add that if I did a limited company accounts I would not let the sole director/shareholder file their own self assessment returns.
If he insisted he would be an ex client

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Replying to meadowsaw227:
paddle steamer
By DJKL
06th Feb 2020 13:59

But okay if there is more than one of them?

Years ago we did quite a few returns for directors where we did not act for the company and quite a few companies where we did not act for all the directors.

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By bernard michael
06th Feb 2020 10:33

I totally agree with the others re the ongoing situation. Purely out of curiosity what is the dividend figure avoided large/small/minute

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By The Dullard
06th Feb 2020 11:25

Is it that time of year already? Easter's sooner than I'd thought.

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David Winch
By David Winch
06th Feb 2020 12:08

In agreement with others on here, if there is a tax liability for earlier years, the client now knows & accepts this to be the case, but refuses to instruct you to notify HMRC, then you will now need to make a Suspicious Activity Report to your MLRO or the National Crime Agency.
David

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RLI
By lionofludesch
06th Feb 2020 13:24

Your client is dishonest.

Dump him and tell him why.

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