Best way to resolve client refusing stock take?

Closing Stock Issue

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Hello all, I have a client who incorporated 5 years ago. He has grown quite a bit since. Initially he got away with saying stock purchased = cost of goods sold. The business was tiny back then. For the last 2 statutory accounts, I have asked for a stock take to be done or for a document showing closing stock value and the logic behind the computation. That has not been forthcoming. I have explained to him that based off my knowledge of the Business and Gross Profit%, the cost of goods sold needs to be adjusted and would lead to corporation tax of £70k being immediately due on last accounts (filed end of Feb this year as provisional).

The bottom line is I can read between the lines in his emails - all communications documented - it seems like he is hoping I can make some magic and let the problem go away. That is never going to happen, hence why all communciation is now in writing and no longer accepting phone calls unless they are recorded. Now he is telling me this is affecting his mental health and family and he is stressed etc. Almost sounds like he wants to blame my firm for this situation.

I have asked him to conduct a full stock take immediately and ensure there is a process in place to track stock (already offered a module for this - chargeable of course).

I intend to include a note in the accounts explaining the stock adjustment.

Is there something I am missing here? Would you handle this differently? Should I be considering disengagement? Should I separately inform HMRC of the adjustment upcoming (assuming he does the stocktake or if he doesnt do the stocktake)?

Thank you for time and help.

Replies (61)

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By David Ex
29th Apr 2023 13:34

tljenkin007 wrote:

Best way to resolve client refusing stock take?

Resign. If you can’t do your job properly because the client won’t let you, why (how) would you continue to act?

Others will comment on any potential MLR issues.

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Replying to David Ex:
accountant
By tljenkin007
29th Apr 2023 17:04

It may well come to that very soon. Thank you.

David Ex wrote:

tljenkin007 wrote:

Best way to resolve client refusing stock take?

Resign. If you can’t do your job properly because the client won’t let you, why (how) would you continue to act?

Others will comment on any potential MLR issues.

Thanks (1)
Replying to Wanderer:
accountant
By tljenkin007
29th Apr 2023 17:05

Thank you. We have been following the flowchart. I dont think the client has expressly refused to do a stocktake, just making many excuses of why it is impossible to do one. And if it is to be done, only himself, the Director, can do it.

Wanderer wrote:

https://www.icaew.com/technical/tax/pcrt/2019/helpsheet-c-dealing-with-e...

Disengage.

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By I'msorryIhaven'taclue
29th Apr 2023 15:01

tljenkin007 wrote:

For the last 2 statutory accounts, I have asked for a stock take to be done or for a document showing closing stock value and the logic behind the computation. That has not been forthcoming.

If the last two sets of accounts were filed with zero value closing stock then that could put you in the soup too. I'd see that as a compelling reason for hanging in there and correcting matters: a realistic stock figure in the present (provisional) accounts would of course correct the understated profits of previous years, so that ultimately the correct amount of CT is paid.

tljenkin007 wrote:
I have explained to him that based off my knowledge of the Business and Gross Profit%, the cost of goods sold needs to be adjusted and would lead to corporation tax of £70k being immediately due on last accounts (filed end of Feb this year as provisional).

That's a lot of closing stock - £350k ?

tljenkin007 wrote:

Now he is telling me this is affecting his mental health and family and he is stressed etc.

Poor lamb. Always ups the ante when they play the victim card./p>

tljenkin007 wrote:

I have asked him to conduct a full stock take immediately and ensure there is a process in place to track stock (already offered a module for this - chargeable of course).

Concentrate on the first of these, then at least you'll have a ball-park figure to work with. A greedy client like this might be easily persuaded to perform a stocktake if he thinks it might benefit him. In a similar situation (although lower values than your case) a client listed stock item costs, then analysed them into columns of more than a year old, more than 2 years etc and was invited to insert his estimated NRVs / scrap values for older or obsolete stock. Of course, I took very little notice of his proposed write downs.

tljenkin007 wrote:

Should I separately inform HMRC of the adjustment upcoming (assuming he does the stocktake or if he doesnt do the stocktake)?

Don't dig yourself any deeper by amending or adjusting your client's provisional statutory accounts without director's consent. Just send HMRC the stocksheet, prepared by your client's own hand, and invite them to adjust the provisional tax comps / CT return accordingly.

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Replying to I'msorryIhaven'taclue:
accountant
By tljenkin007
29th Apr 2023 17:08

That is my thinking. Get the closing stock value supplied and the tax provision will be corrected to date. However, HMRC could argue that interest and penalties are due because the last accounts should have had tax paid and no tax was paid as there was no profit. Closing stock estimated at £350k, yes. Your thoughts?

I'msorryIhaven'taclue wrote:

tljenkin007 wrote:

For the last 2 statutory accounts, I have asked for a stock take to be done or for a document showing closing stock value and the logic behind the computation. That has not been forthcoming.

If the last two sets of accounts were filed with zero value closing stock then that could put you in the soup too. I'd see that as a compelling reason for hanging in there and correcting matters: a realistic stock figure in the present (provisional) accounts would of course correct the understated profits of previous years, so that ultimately the correct amount of CT is paid.

tljenkin007 wrote: I have explained to him that based off my knowledge of the Business and Gross Profit%, the cost of goods sold needs to be adjusted and would lead to corporation tax of £70k being immediately due on last accounts (filed end of Feb this year as provisional).

That's a lot of closing stock - £350k ?

tljenkin007 wrote:

Now he is telling me this is affecting his mental health and family and he is stressed etc.

Poor lamb. Always ups the ante when they play the victim card./p>

tljenkin007 wrote:

I have asked him to conduct a full stock take immediately and ensure there is a process in place to track stock (already offered a module for this - chargeable of course).

Concentrate on the first of these, then at least you'll have a ball-park figure to work with. A greedy client like this might be easily persuaded to perform a stocktake if he thinks it might benefit him. In a similar situation (although lower values than your case) a client listed stock item costs, then analysed them into columns of more than a year old, more than 2 years etc and was invited to insert his estimated NRVs / scrap values for older or obsolete stock. Of course, I took very little notice of his proposed write downs.

tljenkin007 wrote:

Should I separately inform HMRC of the adjustment upcoming (assuming he does the stocktake or if he doesnt do the stocktake)?

Don't dig yourself any deeper by amending or adjusting your client's provisional statutory accounts without director's consent. Just send HMRC the stocksheet, prepared by your client's own hand, and invite them to adjust the provisional tax comps / CT return accordingly.

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Replying to tljenkin007:
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By lionofludesch
29th Apr 2023 18:06

tljenkin007 wrote:

That is my thinking. Get the closing stock value supplied and the tax provision will be corrected to date.

May year end, you say ?

Surely he'll be paying slightly more, given the increase in tax rate.

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Replying to lionofludesch:
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By I'msorryIhaven'taclue
30th Apr 2023 11:13

lionofludesch wrote:

May year end, you say ?

Surely he'll be paying slightly more, given the increase in tax rate.

I'd inferred that we're dealing with y/e May 2022's (provisional) accounts.

Nevertheless, a good stick to beat him with to mend his dilatory ways!

tljenkin007 wrote:

That is my thinking. Get the closing stock value supplied and the tax provision will be corrected to date. However, HMRC could argue that interest and penalties are due because the last accounts should have had tax paid and no tax was paid as there was no profit. Closing stock estimated at £350k, yes. Your thoughts?

Well I suppose you'd be most of the way there if you can obtain a "current" stock valuation for the May '22 accounts. I guess you'd then have to make a value call on whether to let sleeping dogs lie by invoking the materiality concept; or whether to opt for PYA. Did closing stock increase in linear fashion, or exponentially? (rhetorical).

A PYA to the May '21 accounts, and earlier, would no doubt be embarrassing for your firm; not to mention leave you wide open to a claim (perhaps contractual failure, at worst negligence) from a litigous client. (And I don't much like the sound of his pain and suffering claim in that respect. The ensuing damages of your not having posted a closing stock figure in the May 2021 accounts would be the amount of any penalties and late payment interest the Revenue hit him with (small potatoes!). No ensuing damages for CT - he will have paid the correct amount of tax. However, the pain and suffering add-on damages can be substantial. Just thinking aloud.) May 2021's stock would have been lockdown stock - how much could that have been?

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Replying to I'msorryIhaven'taclue:
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By lionofludesch
30th Apr 2023 11:32

I'msorryIhaven'taclue wrote:

lionofludesch wrote:

May year end, you say ?

Surely he'll be paying slightly more, given the increase in tax rate.

I'd inferred that we're dealing with y/e May 2022's (provisional) accounts.

You could be right. Though the OP said yesterday that the physical stocktake was to take place at the end of May 2023.

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Replying to lionofludesch:
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By I'msorryIhaven'taclue
30th Apr 2023 13:21

Well as you pointed out yesterday (or was it the day before) the stock figure will take a fair bit of work rolling-back whatever he does. Two birds with one stone, perhaps, by going for a May 2023 actualstock figure?

£350k is an awful lot of stock to introduce out of the blue - for me it would hinge on the May 2021 stock figure ie whether to PYA for that year; May 2022's been provisionally submitted, we're told, so I guess that's more easily open to adjustment.

OP's been slapped with a wet fish by IRSKTB this morning at the (current) foot of this thread (for not having introduced a stock figure in earlier years) although to balance that the May 2020 and May 2021 accounts coincided with lockdown conditions. I have businesses whose lockdown stock was little or nothing; conversely one whose online sales went through the roof. I'm beginning to see what TD has now and again said about [the futility of] making good calls (or otherwise) "based on the information we're told [so far]".

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Replying to I'msorryIhaven'taclue:
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By lionofludesch
30th Apr 2023 13:38

I'msorryIhaven'taclue wrote:

Well as you pointed out yesterday (or was it the day before) the stock figure will take a fair bit of work rolling-back whatever he does. Two birds with one stone, perhaps, by going for a May 2023 actualstock figure?

£350k is an awful lot of stock to introduce out of the blue - for me it would hinge on the May 2021 stock figure ie whether to PYA for that year; May 2022's been provisionally submitted, we're told, so I guess that's more easily open to adjustment.

OP's been slapped with a wet fish by IRSKTB this morning at the (current) foot of this thread (for not having introduced a stock figure in earlier years) although to balance that the May 2020 and May 2021 accounts coincided with lockdown conditions. I have businesses whose lockdown stock was little or nothing; conversely one whose online sales went through the roof. I'm beginning to see what TD has now and again said about [the futility of] making good calls (or otherwise) "based on the information we're told [so far]".

All fair points and I have to say that I wouldn't have accepted a zero stock figure - stocktake or no stocktake - unless the stock was truly trivial.

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Replying to lionofludesch:
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By I'msorryIhaven'taclue
30th Apr 2023 14:30

lionofludesch wrote:

All fair points and I have to say that I wouldn't have accepted a zero stock figure - stocktake or no stocktake - unless the stock was truly trivial.

I too would hope not to, although it sounds as if the OP has been caught on the blindside. (Do you have such a thing in League? The scrums,unlike the open-field play, always look too static for that.)

One or two got the better of me during lockdown and/or Brexit when my guard was lowered - exceeding VAT thresholds, exporting services, dumping bank statements on us at the eleventh-hour in place of proper books. Cue damage limitation mode, post-lockdown teeth, and putting matters right after the event. IMHO life's too short to be getting everything just-so - in the OP's shoes I'd be aiming at correcting matters at May 2022 and not worrying myself into an early grave about 2021's accounts. Rightly or wrongly.

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Replying to I'msorryIhaven'taclue:
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By lionofludesch
30th Apr 2023 14:45

I'msorryIhaven'taclue wrote:

I too would hope not to, although it sounds as if the OP has been caught on the blindside. (Do you have such a thing in League? The scrums,unlike the open-field play, always look too static for that.)

Still appears on the team sheets but the distinction's not as important as it was, partly because there aren't as many scrums as there used to be but mainly because the traditional roles have changed.

Possibly a little off topic here, though.

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Replying to lionofludesch:
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By I'msorryIhaven'taclue
30th Apr 2023 18:46

I've wandered offside!
Besides which the OP's a union man ;)

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Replying to I'msorryIhaven'taclue:
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By lionofludesch
30th Apr 2023 18:53

The game's changed immeasurably in the last twenty years or so. The hookers now generally pack at the back of the scrum, rather than the middle of the front row. Wingers, rather than standing on the touchline forming lasting friendships with touchjudges, cart the ball up themselves instead of giving into the forwards. The game's far faster and the average points scored in a game has almost doubled.

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Replying to I'msorryIhaven'taclue:
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By JackH
03rd May 2023 10:22

Narrow side and "edge" instead of "wing". League scrums have little function save to restart the game with all the forwards stuck in one place, opening up subsequent play more than would a play the ball (which replaced scrums during Covid). The main difference btween League and Union is the former does not have endless phases with players strung out the width of the field or rolling about on it and scrums endlessly reformed with time still running and games end with the hooter not 20 minutes over time. A downside is that apart from scrum halves most League players have the same height and build whatever position they play in.

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By lionofludesch
03rd May 2023 13:01

JackH wrote:

Narrow side and "edge" instead of "wing". League scrums have little function save to restart the game with all the forwards stuck in one place, opening up subsequent play more than would a play the ball (which replaced scrums during Covid).

You don't have to fill your scrum with forwards. Especially if you're defending.

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By lionofludesch
29th Apr 2023 16:04

He's trouble.

Give him an ultimatum as one last chance and then invite him to leave if he doesn't take it.

I'd also explain that you have obligations too and his intransigence is affecting your mental health.

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Replying to lionofludesch:
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By I'msorryIhaven'taclue
29th Apr 2023 16:34

Though it's going to be so difficult to incentivise this client to perform a proper stocktake.

Do you think there's any leverage in implying to him that if he doesn't come up with a reasonably accurate stock figure for the current accounts then the likely outcome is that HMRC will (over)-guestimate it, backdate it, slap penalties and late payment interest on it, and investigate his finances all the way back to incorporation? (All of which really would affect his mental health!)

OP, is the matter exacerbated by the client having paid in advance for these accounts (through monthly subscriptions, perhaps)?

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Replying to I'msorryIhaven'taclue:
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By lionofludesch
29th Apr 2023 16:54

I'msorryIhaven'taclue wrote:

Though it's going to be so difficult to incentivise this client to perform a proper stocktake.

It's his obligation. OP can resign if client doesn't do his job.

Quote:

Do you think there's any leverage in implying to him that if he doesn't come up with a reasonably accurate stock figure for the current accounts then the likely outcome is that HMRC will (over)-guestimate it, backdate it, slap penalties and late payment interest on it, and investigate his finances all the way back to incorporation? (All of which really would affect his mental health!)

Client calls bluff and OP looks foolish. Mind you, the trouble with stocktakes is that they have to be done on, or very close to, the year end. Doing one months later has a huge potential error. I might offer to help him through it. For a fee, obviously.

Quote:

OP, is the matter exacerbated by the client having paid in advance for these accounts (through monthly subscriptions, perhaps)?

That wouldn't bother me. I liked to give value for money but if I couldn't because the client wouldn't do his bit, it wouldn't play on my conscience.

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Replying to lionofludesch:
accountant
By tljenkin007
29th Apr 2023 17:14

Regarding the stock take, next year end is May, so the timing is perfect.

lionofludesch wrote:

I'msorryIhaven'taclue wrote:

Though it's going to be so difficult to incentivise this client to perform a proper stocktake.

It's his obligation. OP can resign if client doesn't do his job.

Quote:

Do you think there's any leverage in implying to him that if he doesn't come up with a reasonably accurate stock figure for the current accounts then the likely outcome is that HMRC will (over)-guestimate it, backdate it, slap penalties and late payment interest on it, and investigate his finances all the way back to incorporation? (All of which really would affect his mental health!)

Client calls bluff and OP looks foolish. Mind you, the trouble with stocktakes is that they have to be done on, or very close to, the year end. Doing one months later has a huge potential error. I might offer to help him through it. For a fee, obviously.

Quote:

OP, is the matter exacerbated by the client having paid in advance for these accounts (through monthly subscriptions, perhaps)?

That wouldn't bother me. I liked to give value for money but if I couldn't because the client wouldn't do his bit, it wouldn't play on my conscience.

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Replying to I'msorryIhaven'taclue:
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By tljenkin007
29th Apr 2023 17:13

He has been informed of the ramifications of his actions. Not as a threat. He has been provided with HMRC guidance on errors, rectifying them quickly and the related penalties for failing to fix the error quickly. He is aware a 100% penalty plus more could be coming his way if this is not rectified quickly.

He is on a monthly subscription but we are happy to refund part of that if there is a need. Statutory accounts is a small fraction of the annual package deal.

I'msorryIhaven'taclue wrote:

Though it's going to be so difficult to incentivise this client to perform a proper stocktake.

Do you think there's any leverage in implying to him that if he doesn't come up with a reasonably accurate stock figure for the current accounts then the likely outcome is that HMRC will (over)-guestimate it, backdate it, slap penalties and late payment interest on it, and investigate his finances all the way back to incorporation? (All of which really would affect his mental health!)

OP, is the matter exacerbated by the client having paid in advance for these accounts (through monthly subscriptions, perhaps)?

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Replying to lionofludesch:
accountant
By tljenkin007
29th Apr 2023 17:09

It may come to that very soon. Thanks

lionofludesch wrote:

He's trouble.

Give him an ultimatum as one last chance and then invite him to leave if he doesn't take it.

I'd also explain that you have obligations too and his intransigence is affecting your mental health.

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paddle steamer
By DJKL
29th Apr 2023 20:27

Does he/she have staff/others with access to the stock?

If he/she does then point out that with no system , and staff aware no system , he/she is leaving the business open to theft and will be none the wiser if it is taking place, stocktaking annually is the least step that needs taken and in reality some form of stock control system and possibly far more regular checking is required.

£350k of stock is a lot of stock , what it represents in annual purchases is presumably much more, could it be 3,4,5 times as much possibly? That is possibly well over £1 m of goods passing through the business every year with no security/checks beyond purchase invoices..

The other point is insurance, with no valuation at cost how on earth does he/she adequately control the cover needed, if there is an incident how is any insurance claim to be established to the satisfaction of a loss adjuster, if stock not all stored together at one location how will a claim be dealt with if one location say has a fire?

The client sounds like an idiot, idiot clients are dangerous, get him/her to mend his/her ways or walk.

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By lionofludesch
29th Apr 2023 21:05

Harsh but fair.

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David Winch
By David Winch
29th Apr 2023 22:10

"Should I separately inform HMRC of the adjustment upcoming (assuming he does the stocktake or if he doesnt do the stocktake)?"

Absolutely not! Do not send any notifications or figures to HMRC without having first obtained the client's agreement that you should do so.

With regard to AML and Suspicious Activity Reporting the question for you is, "Do I suspect that the client is being dishonest?".
If you do suspect that the client is being dishonest (which involves him deliberately witholding information from you / HMRC in order to reduce his tax payments, temporarily or permanently) then you have an obligation to report that suspicion to your firm's MLRO. The MLRO then has an obligation to report to the NCA.
David

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Replying to davidwinch:
accountant
By tljenkin007
30th Apr 2023 11:03

I think the client realises the situation they are in. I had asked them to complete a template that would spit out a weighted gross profit percentage. Based off that, I produced a document showing what the implications of that was, hence the tax liability mentioned above. Since then, the excuses have been plentiful. My client realises that there will be no bending of rules with my firm. Some of his communications are almost pleading for help to "fix" this problem. Only one way to fix it from his point of view and that is a stock take. Or he can provide a rational paper explaining a stock valuation number.

davidwinch wrote:

"Should I separately inform HMRC of the adjustment upcoming (assuming he does the stocktake or if he doesnt do the stocktake)?"

Absolutely not! Do not send any notifications or figures to HMRC without having first obtained the client's agreement that you should do so.

With regard to AML and Suspicious Activity Reporting the question for you is, "Do I suspect that the client is being dishonest?".
If you do suspect that the client is being dishonest (which involves him deliberately witholding information from you / HMRC in order to reduce his tax payments, temporarily or permanently) then you have an obligation to report that suspicion to your firm's MLRO. The MLRO then has an obligation to report to the NCA.
David

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By ireallyshouldknowthisbut
30th Apr 2023 10:23

Hmm, I think the fingers are pointing the wrong way.

If I was your partner, I think it would run like this.

(1) you would get a massive dressing down for having allowed this situation to arise, in particular not enforcing early stock takes.
(2) I would apologise to the client for the stress you have caused
(3) I would offer to the client to take you off the job
(4) I would get someone competent to go to the site, and assist the client in planning a stock take. This is not a software issue, this is a person knowing how to do something issue.
(5) If required I would get someone competent to go back to the site and run it, or at least oversee it. (Good experience for a desk bound junior).

I would keep the client, who now understand how to run a stock take. I imagine they did not before. I would also be helping them put in strong systems around regular stocktakes etc to avoid theft and ensure decent management data and planning. Its critical to a business of any size.

Not sure about keeping you, you seem to be only too happy to cover up problems and sit pinging out emails and "HMRC guidance on errors" which should never be sent to them. I would never dream of sending out such things to clients, it smacks of lazy approach, and the sort of accountant who says "Can you confirm this is right?" rather than checking it yourself.

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Replying to ireallyshouldknowthisbut:
accountant
By tljenkin007
30th Apr 2023 10:58

This is by far the best response on this thread. You Sir/ Madam deserve a pint of Guiness!

ireallyshouldknowthisbut wrote:

Hmm, I think the fingers are pointing the wrong way.

If I was your partner, I think it would run like this.

(1) you would get a massive dressing down for having allowed this situation to arise, in particular not enforcing early stock takes.
(2) I would apologise to the client for the stress you have caused
(3) I would offer to the client to take you off the job
(4) I would get someone competent to go to the site, and assist the client in planning a stock take. This is not a software issue, this is a person knowing how to do something issue.
(5) If required I would get someone competent to go back to the site and run it, or at least oversee it. (Good experience for a desk bound junior).

I would keep the client, who now understand how to run a stock take. I imagine they did not before. I would also be helping them put in strong systems around regular stocktakes etc to avoid theft and ensure decent management data and planning. Its critical to a business of any size.

Not sure about keeping you, you seem to be only too happy to cover up problems and sit pinging out emails and "HMRC guidance on errors" which should never be sent to them. I would never dream of sending out such things to clients, it smacks of lazy approach, and the sort of accountant who says "Can you confirm this is right?" rather than checking it yourself.

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By I'msorryIhaven'taclue
30th Apr 2023 13:26

tljenkin007 wrote:

This is by far the best response on this thread. You Sir/ Madam deserve a pint of Guiness!

You've put me in mind of Ron Atlinson's post-match comment when he was Aston Villa's manager: "We played so badly today even I was shouting Atkinson Out!"

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By Tax Dragon
01st May 2023 13:36

I've remembered point 7. But as I see my 1-6 have meanwhile been airbrushed from the thread, this will seem out of context:

7. And if you are right, then the company is now turning over a 7-figure sum and finding a mere £70k for tax really wouldn't cause the stress you say client says it is causing. (Which observation, to my mind, is further evidence that you are likely not right.)

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Replying to Tax Dragon:
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By tljenkin007
01st May 2023 15:57

This seems like its another thread. I cant see the responses prior to this. If you can on your end, please repost. Thanks

Tax Dragon wrote:

I've remembered point 7. But as I see my 1-6 have meanwhile been airbrushed from the thread, this will seem out of context:

7. And if you are right, then the company is now turning over a 7-figure sum and finding a mere £70k for tax really wouldn't cause the stress you say client says it is causing. (Which observation, to my mind, is further evidence that you are likely not right.)

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By Tax Dragon
01st May 2023 16:48

I can't see my previous post. It happens sometimes. Posts disappear - not always with good cause.

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By lionofludesch
01st May 2023 17:07

On 1st May 2023 | Tax Dragon Wrote:
A few points, tangential to the above discussion.

1. IANAA, so points 2 to (I'm going to estimate) 10 can be treated as made with a higher degree of ignorance than I usually display.
2. Assuming he was on the cash basis before incorporating, his approach would have been correct at that time.
3. I therefore have some sympathy with Ireally's remarks - there has very likely been a failure by the accountant in not explaining the consequences of incorporating. (And quite possibly the personal tax position in the year of incorporation, as well as the company's position in that year and every year since, has been mistated.)
4. He needs profit in the company to be able to extract that profit as dividend.
5. The only way I have thought of to make the maths work is if numbers are increasing more or less exponentially. That's obviously not sustainable, probably already hasn't been the case and, even if it has been, means that the inaccuracies in your estimates are out by a factor, not just a sum. In short, I don't trust your £350,000 figure in the slightest. (Did you once work for HMRC?)
6. Talking of which, what paperwork have you actually seen? Have you just used purchase and sale figures from the client? Have you seen as much as a bank statement? (The other respondents, being accountants, will have taken that as read. Me not being an accountant allows me to ask more basic questions of you.)
7. Was there a 7? I forget now. Maybe I overestimated when I started.

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Replying to Tax Dragon:
accountant
By tljenkin007
01st May 2023 17:49

Not in any particular order, let me respond to some of your points:
1) The client has stupidly tied all funds into new stock. He has signed an exclusive agreement with a manufacturer and he now has to accept bulk supplies or risks losing the contract he says. Just daft! From what I can see, his funds are not great, certainly not enough to pay a £70k tax bill
2) Before incorporating, he was on a cash basis and flushing everything in yearly tax returns.
3) You help a new client incorporate, you inform them of their responsibilities, they sign a LOE detailing all of that plus they get communication on Directors responsibilities as set out in the act. What more do you want us as a firm to do? The director must adhere to the rules and keep up with duty bound responsibilities.
4) He doesnt extract dividends, never has. On a salary
5) You dont have to trust the £350k, there is science behind it based on information supplied by the Director. Information that has been sense checked.
6) We are the only accountants for this client, we do the bookkeeping, reconciliation etc. But there is no stock system in place, never has been. Client refuses to put one in place with too many excuses including stock is located in several locations including a warehouse, bedroom, garage, mums garage, brothers loft etc.

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By DKB-Sheffield
01st May 2023 19:39

Long time since I've posted but your post has brought me out of dormancy!

The simple facts IMHO are...

1. You have knowingly allowed the filing of incorrect accounts. You say they were 'provisional accounts', but I am unaware of any such definition - particularly for 'private limited' SMEs. So... one can assume, the 'real' accounts have been filed in the full knowledge of those were inaccurate. Your further suggestion that "the client has stupidly tied all funds into new stock" suggests this is not only marginal but seriously material!

2. You state you are the accountants and bookkeepers which suggests you have much more involvement with this client than an annual 'prep and file' job. Surely, as bookkeepers, you should have a very good idea of what is coming in and out!? To me, a bookkeeper should take considerable responsibility for day-to-day financials. That is what the 'role' is there for!

3. £350K stock invariably doesn't build up overnight and you have suggested 2020 and 2021 accounts are incorrect. Again... why did you prepare and file without a stock figure?!

4. You do seem quite sure of your position that this is wholly the responsibility of the director. Whilst this may be true... your preparation and filing of incorrect accounts (and one might add... potentially CT returns for 2020 & 2021) almost certainly makes you complicit in one way or another, and on numerous levels.

The above said, the thing that seems to be most apparent from your post is the level of mutual respect that seems to be missing in your client relationship. If the client won't provide what is needed, the accounts don't get prepared. If you believe a client's actions are "stupid", they may not be the right client for your firm!

Quite simply, the matter needs resolving - quickly - or you need to walk away (and consider AML and other matters). The worry is, having knowingly prepared AND FILED false accounts, you may be too caught up in this already.

FWIW if this had been my client, I would have refused to prepare (and certainly refused to file) accounts and CT unless the stock figure was provided. Whether the client was willing to knowingly sign false accounts or not, I would not be willing to prepare them!

I would, however, have worked WITH the client, even to the extent of undertaking a stock count with them or their team. If that meant accounts were late... they would be late. IF the client had refused to cooperate, they would be an ex-client (with potential SAR). However, that would have happened before the 2020 accounts were prepared... not after the 2022 accounts had been filed!

There is one positive side to you post... it's nice to see AWeb Bank Holiday weekends haven't changed!!!

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Replying to tljenkin007:
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By Tax Dragon
02nd May 2023 06:11

tljenkin007 wrote:

What more do you want us as a firm to do?

As bookkeepers and accountants? Get the accounts right?

Were we in your shoes (though I don't think they'd fit), we'd be under an obligation to notify our insurers of the potential complaint and claim. I suspect a similar obligation now falls on your firm.

Talking of which:

I'msorryIhaven'taclue wrote:

No ensuing damages for CT - he will have paid the correct amount of tax.

That's on the basis this is all addressed and corrected for 2022 y/e, before tax rates go up.

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Replying to Tax Dragon:
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By Hugo Fair
01st May 2023 17:21

I wonder how your errant (before being airbrushed) post would've compared with that of ireallyshouldknowthisbut above (30th Apr 2023 10:23) ... to which OP took such a shine?

There was a faint piscine odour emanating from the start and it's got stronger as time passes ... still amazed at the ways in which Brits manage to amuse themselves on a Bank Holiday weekend!

EDIT: this was stuck at my end for over 4 hours (forgot to hit Send and then went out) ... but now hitting Send without first checking intervening posts looks silly!

However I am filled with wonderment at Lion's unknown ability to divinate what TD wrote but never got published!

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Replying to Hugo Fair:
By ireallyshouldknowthisbut
02nd May 2023 15:29

Hugo Fair wrote:

I wonder how your errant (before being airbrushed) post would've compared with that of ireallyshouldknowthisbut above (30th Apr 2023 10:23) ... to which OP took such a shine?

There was a faint piscine odour emanating from the start and it's got stronger as time passes ... still amazed at the ways in which Brits manage to amuse themselves on a Bank Holiday weekend!

EDIT: this was stuck at my end for over 4 hours (forgot to hit Send and then went out) ... but now hitting Send without first checking intervening posts looks silly!

However I am filled with wonderment at Lion's unknown ability to divinate what TD wrote but never got published!

I assumed the response to my post was 100% sarcastic. Whole thing seems to be victim blaming. I imagine the OP doesn't know how to run a stock take themselves. I note they are now blaming Covid. The last refuge of the desperate.

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By Roland195
01st May 2023 16:29

Is it not within the realms of possibility that the business has expanded beyond the clients expectation/capability and is genuinely struggling with the demands of running it at this level?

I'm not following on why the decision was taken in the last two years to proceed with no stock at all in the absence of a stock take. Surely an estimate from the director would have been better than this? Assuming it was something half way reasonable in line with the accounts prepared then could you not just have included it along with a letter of rep on the subject?

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Replying to Roland195:
accountant
By tljenkin007
01st May 2023 17:53

Year 1, there really wasnt much to report and purchases were very low. Client said there wasnt any stock at close
Year 2, same response but that was May 2020 and covid
Year 3 - same response, more excuses, covid and complexity.
Year 4 - 31/05/22- provisional accounts filed. This is where we are.

Roland195 wrote:

Is it not within the realms of possibility that the business has expanded beyond the clients expectation/capability and is genuinely struggling with the demands of running it at this level?

I'm not following on why the decision was taken in the last two years to proceed with no stock at all in the absence of a stock take. Surely an estimate from the director would have been better than this? Assuming it was something half way reasonable in line with the accounts prepared then could you not just have included it along with a letter of rep on the subject?

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Replying to tljenkin007:
paddle steamer
By DJKL
01st May 2023 19:31

So, how much is he insuring at each location ?

Forget tax bills hurting the business, a fire would possibly bury it six foot under.

I can just imagine a loss adjuster's face when he/she looks at prior year accounts and finds the carrying figure was nil, he/she asks for stock records but there are none, he she asks then for details of selling prices, compares with sales and purchases for the last x months since last published accounts and deduces that stock could not conceivably, on the metric of being nil at last accounting date, be £350k today- bang goes claim (or at least gets enmeshed in a lengthy dispute ) and by end of it client company has vaporised, of course during process blaming the accountants who produced the earlier accounts and instructing solicitors, because we all know when **** hits the fan clients blame everyone but themselves, and of course accountant cannot have put in writing the need for stock in accounts and then submitted the accounts with no stock.

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Replying to tljenkin007:
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By I'msorryIhaven'taclue
02nd May 2023 16:05

tljenkin007 wrote:

Year 1, there really wasnt much to report and purchases were very low. Client said there wasnt any stock at close
Year 2, same response but that was May 2020 and covid
Year 3 - same response, more excuses, covid and complexity.
Year 4 - 31/05/22- provisional accounts filed. This is where we are.

We have a guesstimated stock figure Of £350k for y/e 31 May '22 provisionals.

Might we be privy to the preceding year's (ie Y3) purchases figures as well? (So as to get a feel for the stock levels.)

Assumptions: non-perishables (given the storage locations); physically small items (they're stored in granny's attic); but obsoletion not a factor (otherwise you would have said so).

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Replying to I'msorryIhaven'taclue:
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By Hugo Fair
02nd May 2023 17:40

With regard to your assumptions ... is it possible that philately will get you nowhere?

Interesting thought for the day (compared to the rest of this thread anyway):
* Did you know that although Philately is the term for stamp collecting, the Greek roots of the word literally mean “lovers of tax freedom” (OUP). Appropriate huh?

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Replying to I'msorryIhaven'taclue:
accountant
By tljenkin007
02nd May 2023 18:02

They are non-perishables. In fact some of the items appreciate with time as they become rare to find and buy. Purchases in 21/22 circa £250k. Just informed stock has been insured for £0.5m.

I'msorryIhaven'taclue wrote:

tljenkin007 wrote:

Year 1, there really wasnt much to report and purchases were very low. Client said there wasnt any stock at close
Year 2, same response but that was May 2020 and covid
Year 3 - same response, more excuses, covid and complexity.
Year 4 - 31/05/22- provisional accounts filed. This is where we are.

We have a guesstimated stock figure Of £350k for y/e 31 May '22 provisionals.

Might we be privy to the preceding year's (ie Y3) purchases figures as well? (So as to get a feel for the stock levels.)

Assumptions: non-perishables (given the storage locations); physically small items (they're stored in granny's attic); but obsoletion not a factor (otherwise you would have said so).

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Replying to tljenkin007:
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By WhichTyler
02nd May 2023 18:33

Purchases in 2021-22 £250k, guestimated stock at end 2022 £350k!

What is the sense check there? What was cost of sales? Were there any sales?

You could take this closing stock and (if you have an idea of margin) work back to opening stock then restate 2020-21 and associated tax comps but it sounds like you are in great danger of having wool pulled over your eyes...

I'm out....

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Replying to WhichTyler:
accountant
By tljenkin007
02nd May 2023 19:17

You need to read the entire thread. But to answer your question, client provided GP weighted % , a computation was done to arrive at £350k. There is science behind that number. Yes there is Sales and lots of stock purchases. Arriving at the COS has been the problem compunded by no stock take since incorporation. Hope this helps.

WhichTyler wrote:

Purchases in 2021-22 £250k, guestimated stock at end 2022 £350k!

What is the sense check there? What was cost of sales? Were there any sales?

You could take this closing stock and (if you have an idea of margin) work back to opening stock then restate 2020-21 and associated tax comps but it sounds like you are in great danger of having wool pulled over your eyes...

I'm out....

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Replying to tljenkin007:
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By WhichTyler
02nd May 2023 20:36

I had read it but maybe not understood it. If the closing value of stock (at cost price) is more than they bought in the whole year then some of it must have been there for more than a year.

Does the margin calculation make sense? If you know margin, closing stock and sales, you can calculate opening stock from that. If you do that, what do you get? If it is unrealistic (opening stock higher than closing stock in your case) then one of the other assumptions must be wrong... If you tell us GP and t/o we could do the sums here...

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Replying to WhichTyler:
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By Hugo Fair
02nd May 2023 21:30

"If the closing value of stock (at cost price) is more than they bought in the whole year then some of it must have been there for more than a year" ... you'd think so.

But apparently client now thinks that "some of the items appreciate with time as they become rare to find and buy" - so applying logic to these sporadic bursts of incomplete info has become an even more fruitless task than usual.

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Replying to Hugo Fair:
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By DKB-Sheffield
02nd May 2023 22:56

Hugo Fair wrote:

But apparently client now thinks that "some of the items appreciate with time as they become rare to find and buy" - so applying logic to these sporadic bursts of incomplete info has become an even more fruitless task than usual.

I'll admit, that bit really confused me. How does one value stock? Higher of cost and net appreciated value...? It's been a long time since learning the fundamentals but, I don't ever recall that being one of them!

Thanks (4)

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