Can I still act for client.

Incorrect claim for BADR

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I prepared a 2023 Return for a client including a CGT computation which, at that time, correctly claimed BADR with the result that the gain was taxed at 10%. Since filing the Return in April 2033, it has come to my attention that the client is continuing to work in the same industry as a director in a husband and wife limited company. I have suggested that he reconsiders the claim and files an amended Return before 31st January, but he is reluctant to do so. Any thoughts on where I stand in respect of disclosure to HMRC. 

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RLI
By lionofludesch
18th Jan 2024 18:14

"Since filing the Return in April 2033...."

Ah - you have the famous time machine, frequently mentioned on this forum.

I think you have to show him the door, don't you?

I'm not sure what the chances of HMRC picking up on this would be, though.

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Replying to lionofludesch:
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By Wanderer
18th Jan 2024 18:46

.

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By Ruddles
18th Jan 2024 18:42

Why do you think that BADR is no longer available? There is nowhere near enough detail in your question to enable an informed response to your query.

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Replying to Ruddles:
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By FactChecker
18th Jan 2024 18:48

Quite ... for a start "a director in a husband and wife limited company" could cover a lot of very different scenarios - such as:
* is client spouse of the other director or an additional director?
* was the H&W company already trading (or even connected to) the now disposed of company?
* what was the nature of the 'disposal'?
... and so on ad (almost) infinitum.

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By FactChecker
18th Jan 2024 18:44

"I have suggested that he reconsiders the claim and files an amended Return before 31st January, but he is reluctant to do so.
Any thoughts on where I stand in respect of disclosure to HMRC."

Just be careful not to confuse the two issues you've mentioned there ...
- continuing to represent a client who refuses to take your advice (although 'is reluctant' isn't quite the same as outright refusal);
and
- filing a disclosure of suspicion (without breaching client confidentiality).

There are so many articles already on this site covering those aspects that there's no point in me adding my inexpert thoughts - but maybe David Winch will come along by here.

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By Wanderer
18th Jan 2024 19:01

GSWB1954 wrote:

, it has come to my attention that the client is continuing to work in the same industry as a director in a husband and wife limited company.

Mmm, surely this doesn't prevent the initial BADR claim being valid? You said it was 'correctly claimed'.

Surely you need to be working through the TAAR rules?

Happy to be corrected if I'm wrong.

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David Winch
By David Winch
18th Jan 2024 19:19

Let me make a few assumptions:
1. You filed a self-assessment tax return for the client for the year to 5 April 2023 in April 2023, claiming a tax relief which (at that time) appeared to be entirely proper and appropriate.
2. Since April 2023 events have unfolded which cause you to believe now that the tax relief claim is not proper and appropriate. I am assuming you are correct about this.
3. In consequence it is your view that the client has underpaid (or by 31 January 2024 will have underpaid) tax to HMRC.
4. You have advised the client of this and advised him to instruct you to file an amended return for 2022/23.
5. The client has not yet instructed you to do that.

The question I am asking myself is why (5)?
If (A) the client believes you are mistaken then he is entitled to that opinion.
If (B) the client believes your advice is correct, but has decided not to notify HMRC because he wishes to 'save' the tax that is altogether a different situation.

If you don't know whether it is (A) or (B) you need to find out!

If (A) then he needs to find an accountant who agrees with him & leave you and instruct them. I would think you would not want to act for a client who does not think you understand his tax affairs. However the client is not being dishonest.
If (B) then you need to sack the client because he is being deliberately dishonest in his tax affairs and you cannot go along with that. You also need to file a Suspicious Activity Report with your firm's MLRO / the NCA.

In neither case will you inform HMRC directly of the details of the incorrect claim.
You should check the ethical guidance of your professional body as to whether you need to inform HMRC that the figures on the 2022/23 income tax return cannot be relied upon (without giving further details).
Good luck!
David

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By Truthsayer
19th Jan 2024 10:12

'it has come to my attention that the client is continuing to work in the same industry'

What of it? How does that invalidate a BADR claim?

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By JCresswellTax
19th Jan 2024 10:21

Was the distribution made via MVL or were final reserves under £25k, I believe that makes a big difference.

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Replying to JCresswellTax:
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By Smith Butler
23rd Jan 2024 10:03

Hi JCresswellTax what difference does it make if the distribution was made via a MVL?

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Replying to Smith Butler:
By Ruddles
23rd Jan 2024 11:19

Because the TAAR in question applies only to companies being wound up, eg by MVL.

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Replying to Ruddles:
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By Smith Butler
23rd Jan 2024 11:24

Thanks for the reply and yes I am aware of that but I thought someone was saying there was a way around it.

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Replying to Smith Butler:
By Ruddles
23rd Jan 2024 11:38

There is a way around it - demonstrate that it wasn't done for tax avoidance reasons.

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Della Hudson FCA
By Della Hudson
23rd Jan 2024 09:37

I had the same scenario many years ago. Told him we wouldn’t take him on and why then filed the report when he refused to amend.

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Ray McCann
By Ray McCann
23rd Jan 2024 09:59

The first thing you must do is check whether in fact the claim to BADR is no longer valid.

If it is incorrect then you must advise the client to correct it. If he refuses and you are a member of a PCRT professional body you must read the section in PCRT dealing with errors in returns and take it from there.

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Ray McCann
By Ray McCann
23rd Jan 2024 09:59

The first thing you must do is check whether in fact the claim to BADR is no longer valid.

If it is incorrect then you must advise the client to correct it. If he refuses and you are a member of a PCRT professional body you must read the section in PCRT dealing with errors in returns and take it from there.

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Ray McCann
By Ray McCann
23rd Jan 2024 09:59

The first thing you must do is check whether in fact the claim to BADR is no longer valid.

If it is incorrect then you must advise the client to correct it. If he refuses and you are a member of a PCRT professional body you must read the section in PCRT dealing with errors in returns and take it from there.

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Ray McCann
By Ray McCann
23rd Jan 2024 09:59

The first thing you must do is check whether in fact the claim to BADR is no longer valid.

If it is incorrect then you must advise the client to correct it. If he refuses and you are a member of a PCRT professional body you must read the section in PCRT dealing with errors in returns and take it from there.

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Ray McCann
By Ray McCann
23rd Jan 2024 09:59

The first thing you must do is check whether in fact the claim to BADR is no longer valid.

If it is incorrect then you must advise the client to correct it. If he refuses and you are a member of a PCRT professional body you must read the section in PCRT dealing with errors in returns and take it from there.

Thanks (0)
Ray McCann
By Ray McCann
23rd Jan 2024 09:59

The first thing you must do is check whether in fact the claim to BADR is no longer valid.

If it is incorrect then you must advise the client to correct it. If he refuses and you are a member of a PCRT professional body you must read the section in PCRT dealing with errors in returns and take it from there.

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Replying to RayM55:
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By FactChecker
23rd Jan 2024 10:53

I've heard of repetition to emphasise a point, but this is verging on shouting. :=)

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Replying to RayM55:
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By Kaylee100
24th Jan 2024 12:26

I think you need to see your GP ;)

I started this post by quoting you! I'm still laughing at myself now.

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Replying to Kaylee100:
Ray McCann
By Ray McCann
25th Jan 2024 13:09

So you laugh at me over what is quite obviously a glitch at the accounting web end? I think it’s you who needs to see your GP, I’m perfectly fine.

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Replying to RayM55:
RLI
By lionofludesch
25th Jan 2024 13:14

RayM55 wrote:

So you laugh at me over what is quite obviously a glitch at the accounting web end? I think it’s you who needs to see your GP, I’m perfectly fine.

It's your impatience.

Been there myself. Done that. Learned from it.

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Replying to lionofludesch:
By Ruddles
25th Jan 2024 13:17

Impatience? On more than one occasion I have pressed 'post' once, only to see several copies of the comment appear.

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Replying to lionofludesch:
Ray McCann
By Ray McCann
26th Jan 2024 13:24

I have absolutely no idea what that means, how do you learn from an issue at the other end?

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By Tax Dragon
25th Jan 2024 20:11

It would make more sense to me if rules like this were dealt with via boxes 15 and 16 (or 16 and 17... I forget the numbers... I mean the ones dealing with adjustments to previous years' tax consequent to events (or claims etc) in the year covered by the return no being made.

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