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Business Expenses Claim and Difference of Opinion

Business Expenses Claim and Difference of Opinion

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Good morning

We have taken over an audit client last year and are preparing their accounts first time. I won't go into detail of many issues (some material) that have come to light with previous year audited accounts but it will be fair to say it appears no real work was done on client draft TB.

With the above in mind, it is obvious no questions were asked to the client and "personal expenses" have slipped through cost of sales etc. With current year accounts we have identified significant level of expenses that "appears" to be private and were posted as business expenses.

As an example, the client has paid approx. £60k towards various overseas trips which are recorded as business travel. This includes travel to various countries such as Mauritius, Bahrain, Sri Lanka etc. where there is no customer or supplier and some at a time of Christmas / Easter holidays. The client claims these were business travel to attend exhibitions, meet potential new customers, suppliers and so on even though he is not able to produce any evidence (appointment notes, name of customers/suppliers visited etc) to substantiate the claim.

I am of the opinion this cannot be allowed as business expenses and need to be moved to director account unless we are satisfied these were genuine business expenses. In a worst case scenario if this is allowed to be business expense no CT relief should be claimed on these. My senior colleague is of the view client representation of this to be a business expense is sufficient and we need to allow these as business expenses and CT relief claimed. The client will sign letter of representation.

What does other respectable members think to be the correct approach? 

Replies (8)

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By bernard michael
09th Jan 2020 09:44

Ask your colleague if he'll handle the HMRC investigation when it eventually emerges. Particularly if CT relief was claimed on the previous year's efforts, which you now know about and may be concurring with
I assume the expense user is also the only shareholder. If not we have a fraud of HMRC & other shareholders

I vote do not include in expenses but charge to director account. An auditor is a bloodhound not a watchdog I'd like to add "or a [***] cat"

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By Accountant A
09th Jan 2020 10:20

kashpat wrote:

My senior colleague is of the view client representation of this to be a business expense is sufficient and we need to allow these as business expenses and CT relief claimed. The client will sign letter of representation.

They are a business expense if reported as benefits in kind.

If you believe the client is willing to sign a LoR which, in your view, includes lies, you ought to be disengaging and considering where there are MLR obligations. What is being done in relation to previous years?

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Replying to Accountant A:
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By kashpat
09th Jan 2020 10:51

I am only preparing financial statements for the year and the audit will be carried out by our audit team. The findings in relation to previous year has been reported to audit manager for him to take this forward and deal with appropriately.

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Replying to kashpat:
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By Accountant A
09th Jan 2020 11:18

kashpat wrote:

I am only preparing financial statements for the year and the audit will be carried out by our audit team. The findings in relation to previous year has been reported to audit manager for him to take this forward and deal with appropriately.

Others will have a more informed view but are you sure that absolves you of further responsibility?

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Replying to Accountant A:
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By JoF
09th Jan 2020 11:38

Difficult position to be put in if its by a senior colleague.

Is this a situation where the OP should file an SAR with whoever is the designation MLR bod in the office? Or wait for the outcome of the audit (but would the OP have access to that!)

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Replying to JoF:
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By Accountant A
09th Jan 2020 13:10

JoF wrote:

Difficult position to be put in if its by a senior colleague.

Very. Sadly a not unfamiliar story on here.

JoF wrote:

Is this a situation where the OP should file an SAR with whoever is the designation MLR bod in the office? Or wait for the outcome of the audit (but would the OP have access to that!)

Indeed. At the least, I would be tempted to put something in writing and keep a copy so that if the **** subsequently hits the fan the OP has some evidence of having raised concerns.

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By lesley.barnes
09th Jan 2020 10:34

Could you play this another way and check the receipts to see how many people went and if they were family? Would it then not fail to meet the wholly and exclusively test if your suspicions were founded? I'm sure I read a tribunal case last year were the director and family were taking personal holidays and claiming them as expenses. I've searched but I can't find it now someone else might find it. The tribunal agreed with HMRC. You are in a difficult position if the senior is prepared to allow this. Perhaps the senior would like to take over the audit?

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Replying to lesley.barnes:
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By kashpat
09th Jan 2020 11:09

The invoices have been looked at and this shows the husband and wife travelling who both are directors/shareholders of the company although the costs are disproportionate i.e. £13k for 7 days for hotels and flight in one instance!

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