Share this content

Building Society requires accountants letter

Is it worth taking this client on

Didn't find your answer?

Approached by a potential client.  He has a book-keeper who files his tax return but he is buying a home and the Building Society requires on a qualified accountants letterhead just his estimated income and profit for 2020-21.  

The client is a carpenter and will provide bank statements to date with CIS Certificates.  He doesn't have any other costs apart from fuel

Is there much risk involved taking on such a client if all informaiton is provided.

Replies (26)

Please login or register to join the discussion.

avatar
By Paul Crowley
14th Mar 2021 17:58

Will he want you once he gets the loan?
Certificate will ask how long you have been acting

ICAEW recommends facts not opinions
They only want an estimate?
No facts at all?

Thanks (1)
RLI
By lionofludesch
14th Mar 2021 18:08

No thanks.

Here's a skinflint who's found out that - oh dear - sometimes an accountant is essential.

Bad luck.

If you were a lender, Sanjay, what comfort would you take from a letter that said, in effect "I've been acting for this lad for about ten minutes and he tells me he's made £x but I've not had much chance to check it."

Thanks (3)
Replying to lionofludesch:
avatar
By sanjay100
14th Mar 2021 18:28

Thats fine I have too much on my plate anyway this month plus its a CIS client but what about those who complete their own tax returns and requires accountants certificate for the mortgage application. Where do they go.

Surprising this is the first time I have been approached for an accountant certificate from a non client. Have others been approached ?

Thanks (0)
Replying to sanjay100:
RLI
By lionofludesch
14th Mar 2021 19:06

sanjay100 wrote:

Thats fine I have too much on my plate anyway this month plus its a CIS client but what about those who complete their own tax returns and requires accountants certificate for the mortgage application. Where do they go.

Surprising this is the first time I have been approached for an accountant certificate from a non client. Have others been approached ?

Yes, of course. I've always assumed that they put off their plans to flit or found another lender.

Thanks (0)
Replying to sanjay100:
avatar
By SXGuy
15th Mar 2021 07:36

People who do their own tax return supply sa302s and tax year overviews, the exact same thing lenders ask for if the accountant is qbe.

He'd be better off asking the lender if they will accept that instead.

And if so, why can't they accept prev 2 years instead of projected future year income.

Further to that, if he's a cis contractor, why can't they accept statements as evidence.

I'd be looking for a new broker at the very least.

Thanks (0)
avatar
By Truthsayer
14th Mar 2021 18:11

I wouldn't give an estimate for one of my own clients, let alone someone else's. If you take him on, insist on you completing the 2020/21 return before you reply to the building society. The year end is very close, after all.

Thanks (6)
Replying to Truthsayer:
avatar
By Paul Crowley
14th Mar 2021 18:18

But as always
It is desperate right now

Thanks (1)
Replying to Truthsayer:
Tornado
By Tornado
15th Mar 2021 10:02

'I wouldn't give an estimate for one of my own clients, let alone someone else's'

I fully agree

Thanks (3)
avatar
By Wanderer
14th Mar 2021 18:17

(Potential) client has just learnt the cost of not using an accountant.

Been approached to do this sort of thing many times. Normally accompanied with phrase along the lines:-
"It won't take you long, the work's already been done."

He'll never be back and won't be willing to pay for your time to properly set him up, do CDD, properly check figures, etc. etc.

No costs apart from fuel? Yeh right! Trying to maximise figures to get mortgage. Bet his past accounts had other costs in there.

Don't be drawn in. Avoid.

Thanks (1)
avatar
By Paul Crowley
14th Mar 2021 18:36

Sanjay
If you do it the bookkeeper will consider that he has someone to get him out of not being qualified for future issues

Thanks (1)
avatar
By Tax Dragon
15th Mar 2021 06:45

+1

(To pretty much all of the above.)

Thanks (0)
avatar
By bernard michael
15th Mar 2021 10:02

In answer to your question NO. Too much trouble for not a lot monetarily - that's if he pays you

Thanks (1)
Avatar
By I'msorryIhaven'taclue
15th Mar 2021 10:35

And because nobody has mentioned this Sanjay, if you do go ahead and endorse this guy's loan application then your duty of care to the lender means you would potentially lay yourself open to an action of negligent misstatement in the event of repayment default.

Thanks (0)
Replying to I'msorryIhaven'taclue:
avatar
By sanjay100
15th Mar 2021 14:39

I have declined the engagement but just want to understand this a little more if it ever arises in future in terms of risk

The building society was happy with the SA302 for previous years but wanted the accountant to completed the forecast for 2020-21 so I would not have used the book-keeper workings but would have compiled the information based on bank statements It would have been based on actuals since its nearly the end of the financial year so could back up the figures easily so would there have been much risk by taking on this engagement.

Thanks (0)
Replying to sanjay100:
Avatar
By I'msorryIhaven'taclue
15th Mar 2021 17:39

Well Duggomon is on the money with his 13.09 post, below.

Your duty of care to any third party - the lender, in your case -relying upon your statement has evolved through precedent. It's broadly an extension of the snail in the bottle case (Donaghue v Stevenson) in which the neighbour principle was established (meaning, essentially, the duty of care one owes to others).

Take a look at Hedley Byrne on the link below, for an overview of your duty of care to the lender, in spite of that lender being a third party.
https://www.lawteacher.net/cases/hedley-byrne-v-heller.php
There's also a useful summary of case law developments since that 1963 case.

Note btw that in the case above Heller's disclaimer on the reference was sufficiently tight-worded to escape liability. I always add a similar disclaimer, to the effect that any reference is given in good faith and to the best of my knowledge, but that the third party must rely on its own investigation and judgement in making its decision. Not an absolute certainty in avoiding liability, but all grist to the mill.

Thanks (1)
Replying to I'msorryIhaven'taclue:
avatar
By Paul Crowley
15th Mar 2021 17:59

Agree
1 The accounts estimates are no longer accounts for tax as Sanjay has been put on notice that they will be relied upon by lender
The ICAEW standard does contain a similar disclaimer

2 A person known to me once ended up at ICAEW disciplinary (35 or so years ago when they were not made public ) for being too glowing in his reference on a client that defaulted
Do not really know the details as never did see the ICAEW report
But it did cost him money

Thanks (1)
Replying to Paul Crowley:
Avatar
By I'msorryIhaven'taclue
16th Mar 2021 12:42

I once had a bank's lending department try to attach some portion of blame to me after a new starter motor garage chowed through their overdraft then went bust.

I'd prepared the business plan. The bank may have been blinded by the presentation - I'd invested in a colour laser when others were still using b&w dot matrix - not to mention the dazzling array of charts and graphs (not unlike a Boris Covid broadcast!). Fortunately I was able to rely on my disclaimer, to the effect that I assisted the directors in preparing and presenting their plan but did not endorse it in any way.

Come to think of it, their plan was a canny one: garage sited at a busy middle-class suburbia train station; cars serviced and minor dents and dings repaired while the drivers - often housewives without parking bleepers - caught the train to town for the day. However did they go belly-up?

Thanks (1)
By Duggimon
15th Mar 2021 13:09

I've done this before. It was a client of a bookkeeper I knew and had a degree of faith in.

I did the AML checks etc, then took the records for the year just done and checked them against the filings and verified I agree with the figures. I completed the accountants letter as requested (it didn't ask how long I'd been acting), where it asked for a projection I simply stated that we had no reason to expect income levels to decrease.

To me, that accountant's letter is entirely worthless. I would be completely confident defending everything I put in it, but what I put in it really did not confer any surety about the client's affairs, in my opinion. The bank were quite happy with it though.

I charged them more or less what I would have charged had I done the year's accounts myself.

Thanks (0)
All Paul Accountants in Leeds
By paulinleeds
16th Mar 2021 12:13

If, and only if, I did do this, I'd stick to the facts e.g. income in 2018-19 was £47, 2019-20 was £50, 2020-21 was £48. We are not aware (fact) of any significant changes. It would therefore be fair to assume an estimate of around £48,000. Or we've just had Covid-19, we've not prepare accounts, see accounts, records for xx months. No reliable estimates be made. I've never had a bank / building society come back to me. It is only an estimate and an opinion!

Put lots of disclaimers that only estimated based on historical data and 'past performance is not necessarily an indication of the future' etc etc

Make sure you charge enough.

Thanks (0)
Replying to paulinleeds:
By Duggimon
16th Mar 2021 13:50

Exactly, there are plenty of ways to provide a projection while sticking to facts and head off any potential retribution should income decline.

"We have no reason to think the position will change"
"The records for the year to date currently show a profit of..."
"We are advised by the directors anticipated profit levels are..."
"There have been no substantial changes to the trading activity in the current year"

All much better than saying "Based on our knowledge of the business we anticipate profits this year will be..." - that makes the figure your responsibility. Best to either set a known baseline (confirmed PY profits were £X, we have not been advised of anything that would result in a big change) or make it the client's figures until they're confirmed (the directors advise, the company books show).

I too have never had a bank/building society come back to me to get me to stake anything on it.

Thanks (0)
avatar
By Max Maxwell
16th Mar 2021 13:18

Some 15 years ago, when you could get self-certification mortgages, I had a new client asked me to act as his accountant for a business he had just started, which I duly accepted.

After about 4 weeks later, the client told me that he had applied for a mortgage, and the mortgage company needed a letter from the accountant that he was self-employed, but no other details such as earnings, how long has been trading etc

I confirmed to the mortgage company that he was self-employed and presume that he got his mortgage.

Needless to say, I never heard back from this client again, even when I sent him several reminders that his accounts and tax returns were due.

Lesson learnt! Now I tell any new clients that we cannot provide mortgage references unless we have acted for them for 1 year, and prepared 1 years accounts.

If they are genuine, they will stay. Scammers will leave

Thanks (1)
Replying to Max Maxwell:
Avatar
By I'msorryIhaven'taclue
16th Mar 2021 19:40

Around the same time, Max, yours truly became friends with a secondary-market mortgage broker in the downstairs office who was full of Eastern promise (he hailed from Suffolk) who provided a steady stream of re-mortgage (and largely self employed) clients each of whom were initially in need of an accountant's reference to support their various applications.

Like you I cannot recall a single one of them leading to a subsequent set of accounts. Never mind; the £200 a shot initial reference fee helped cushion that blow. Except that long after that particular stream had dried the letters from lenders continued to trickle through. Turned out the broker had scanned our letterhead, on which he began concocting his own references. Occasionally he'd be beaten to the communal post, hence the occasional and perplexing lender's follow up letter occasionally got through to me. Eventually the penny dropped.

During the ensuing years I received not a single follow-up from lenders, in spite of the obvious financial difficulties of some of these "clients". I can only assume that my disclaimers were sufficiently robust to save the day.

Thanks (0)
Replying to I'msorryIhaven'taclue:
avatar
By bernard michael
17th Mar 2021 09:41

I'msorryIhaven'taclue wrote:

Around the same time, Max, yours truly became friends with a secondary-market mortgage broker in the downstairs office who was full of Eastern promise (he hailed from Suffolk) who provided a steady stream of re-mortgage (and largely self employed) clients each of whom were initially in need of an accountant's reference to support their various applications.

Like you I cannot recall a single one of them leading to a subsequent set of accounts. Never mind; the £200 a shot initial reference fee helped cushion that blow. Except that long after that particular stream had dried the letters from lenders continued to trickle through. Turned out the broker had scanned our letterhead, on which he began concocting his own references. Occasionally he'd be beaten to the communal post, hence the occasional and perplexing lender's follow up letter occasionally got through to me. Eventually the penny dropped.

During the ensuing years I received not a single follow-up from lenders, in spite of the obvious financial difficulties of some of these "clients". I can only assume that my disclaimers were sufficiently robust to save the day.


What action did you take against this obvious fraud to protect your reputation??
Thanks (1)
Replying to bernard michael:
Avatar
By I'msorryIhaven'taclue
17th Mar 2021 10:27

Well he upped and left the office block before I could get to the bottom of it. I called to his house, but they were having marital-strife and he'd moved out to a flat elsewhere leaving behind a drug-addicted wife and rather withdrawn looking child. Karma, perhaps.

At the time I thought it was one or two cases and by email, and hadn't realised he had been using my letterheads. A couple of years down the line I bumped into his ex-employee and learned the full extent of it, although by then the 2008 crash had put mortgage brokers out of business. Last I heard was he was running a bar in Spain.

Thanks (0)
Profile
By indomitable
16th Mar 2021 13:37

The ICAEW advises NOT to charge for reference letters as it creates a further 'duty of care'.

Also you must NEVER provide opinions on the clients ability to pay. Just the facts i.e. We have acted for this since DDMMYY 'the clients declared the following income in his self-assessment in the tax year XXXX'.

I personally would never provide a reference letter for a client unless I prepared and filed the return

Thanks (1)
Replying to indomitable:
By Duggimon
16th Mar 2021 13:53

Never say never, some of these forms actually ask you to confirm what figures were in the return. i.e. your duty of care is discharged if you have a copy of the return and can read the boxes.

I don't know who writes the forms they ask you to fill in but hopefully they've not got a professional body ready to censure them for any breach.

Thanks (0)
Share this content