Client not declaring rental properties now leaving

Do we tell new accountants

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Recently, we became aware that a client has in the last two years acquired rental properties.

 

Despite requests for info, this wasn't forthcoming.

 

Surprise, surprise they are moving on. Do we tell the new accountant?

Replies (34)

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By Truthsayer
29th Dec 2023 11:06

Have the new accountants sent you a professional enquiry letter?

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By More unearned luck
29th Dec 2023 11:11

And has the client authorised you to supply his or her personal data to the new accountant?

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Replying to More unearned luck:
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By murphy1
29th Dec 2023 11:14

Yes

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By Truthsayer
29th Dec 2023 13:05

In that case, you should definitely tell the new accountants, as it is a relevant fact.

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By More unearned luck
29th Dec 2023 11:11

Is there someone else you should tell?

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By murphy1
29th Dec 2023 11:32

Yes, and will be dealt with

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By I'msorryIhaven'taclue
29th Dec 2023 11:54

I'd be worried by this. It has the potential for the client, when cornered, to point the finger at you and cry "foul".

I'd tell the new accountant. Something along the lines of "Based on information that has recently come to light, we believe it might be necessary to prepare and submit amended SA tax returns for the most recent x year(s). We hold no details of the properties that may possibly be involved."

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By fawltybasil2575
29th Dec 2023 12:31

@ murphy1 (OP).

1. Forgive any apparent pedantry but (in order to answer your question) one must ask firstly whether the client has (no doubt via you as agent) submitted (or requested you to submit) any Tax Returns which contain erroneous information - if, as but one example, the 2022/23 Tax Return has been submitted but omits Rental Income which should have been shown, then most definitely (subject to my caveat below) you should notify the prospective new accountant. Not to pass on that important information would render pointless the ethical requirement to advise one's prospective successor accountant of that important information.

To explain my "apparent pedantry" point, your OP words were "a client has in the last two years acquired rental properties" - it does not automatically follow therefrom, of course, that any Rental Income has been received, let alone improperly omitted from, or intended to be omitted from, Tax Returns.

[The "caveat" is that I assume that you are a member of ICAEW [or of another accountancy body which has the same ethical requirements, as I would normally expect - if in doubt, therefore, ask your accountancy body].

It is important that you pass on, to the prospective new accountant, ONLY the information which falls within the parameters of the authority letter, otherwise the client may accuse you of breaching confidentiality (from my experience, accountants often incorrectly interpret "I have asked ABC Accountants to act as my accountants" as an authority to pass on any and all information which ABC Accountants request - so exercise great care in that regard).

2. As regards the separate matter impliedly raised (in later posts above) re submitting an SAR to NCA, it is important that there has ALREADY been an "offence" ( in the case of my above example, submitting an incorrect Tax Return - and that such incorrect Tax Return understates the tax liability) committed. If there has as yet been no such "offence" (for example if there has been no under-declaration of Rental Income; or if the first year of Net Rents was 2022/23 and the Tax Return for 2022/23 has not yet been submitted) then the mere fact that the client INTENDS to submit a Tax Return which understates his Income Tax liability IMHO is NOT a "reportable to NCA" matter.

Basil.

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Replying to fawltybasil2575:
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By I'msorryIhaven'taclue
29th Dec 2023 14:53

Season's Greetings, Basil.

Following on from your point #2, above, would you consider the matter to be NCA reportable if the first year of Net Rents was 2021/22 and the client INTENDS to submit an amended 21/22 tax return (and tells you so) to correct the understated income?

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Replying to I'msorryIhaven'taclue:
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By fawltybasil2575
29th Dec 2023 15:49

Warmest of reciprocation, I'msorry . . . . .

My decision (as to whether to submit to NCA) would be based upon whether I BELIEVED the client's purported intention. In that respect, given that the client has indicated an intention to move onto another accountant (impliedly without notifying the incumbent accountant of his reasons for so doing) then (in accordance with the guidance of ICAEW, and elsewhere, of "when in doubt, submit") then YES, I would submit (subject to the caveat below).

The caveat is that if exceptionally (i) the client has indicated that there are valid reasons for the "accountant move" reason (eg change of address; cheaper accountancy fees; looking for "different eyes" guidance; or whatever); AND (ii) indicated that the omission of the Net Rents was an oversight which the client wishes to correct; AND one BELIEVES beyond doubt the client in both those aspects (i) and (ii), then one NEED NOT submit (albeit still considering the "when in doubt" guidance above).

If one DOES decide not to submit an SAR to NCA, then one should document one's full reasons for that decision.

Basil.

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Replying to I'msorryIhaven'taclue:
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By jsaskew
03rd Jan 2024 09:47

Given you are not a mind reader and therefore do not know what their intentions were at the time of the error (deliberate/accidental), you would normally report anyway, even if they say they do intend to correct it.
Until they do correct it, by you telling them they are now aware of the error and it is then deliberate up to the point of correction. Unless you spot the error and correct it by a new submission in short order for example.
https://www.accountingweb.co.uk/community/industry-insights/client-error...

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Replying to fawltybasil2575:
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By More unearned luck
29th Dec 2023 17:51

There needs to be two offences Basil. In the case of a fraudulent 2023 TR that is the fraud (committed, as you say, when the return is filed) and the 'laundering' of the proceeds of the crime. It is only the second offence that triggers the requirement to report and as that offence can't be committed before 31/1/24 when the tax due isn't paid. So I agree that a reportable offence hasn't yet been committed (as regards 2022/23) but for a reason that differs from yours.

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Replying to More unearned luck:
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By fawltybasil2575
29th Dec 2023 19:22

@ MUL.

Thank you. I am more than happy to accept your correcting me.

Whilst your post appears at first sight to relate to my second post (at 15.49) I assume that it is intended to refer in fact to point (2) of my first post (at 12.31) since your comments relate to 2022/23 (whereas my second post answered I’m so . . .’s question re 2012/22).

Of course 31/1/24 is imminent.

Perhaps you would agree with me, although I am more than happy again for you not to do so, that (for simplicity assuming that the OP has no further contact with the client between now and 31/1/24) he should (if he has a reasonable suspicion of the client’s 2022/23 Income Tax being understated as a result of undeclared Rental Income) submit an SAR on 1 February 2024 on the grounds that, at that time, he will have a reasonable suspicion that Money Laundering will have taken place.

As you will know, the official guidance emphasises that one should NOT refrain from submitting an SAR purely because one does NOT hold EVIDENCE of the suspected offence, ie that a reasonable suspicion that an offence has been (effectively “will have been”) committed IS sufficient to REQUIRE the submission of that SAR.

Thanks again.

Basil.

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Replying to fawltybasil2575:
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By Tax Dragon
29th Dec 2023 20:04

May I append a question to this interesting discussion?

If rental income was received in both 2021/22 and 2/3 and tax evaded by knowing ommission from tax returns, is that: one SAR now for the past offence and another SAR on 1 Feb for the second? I presume yes, and each specifies the precise suspected offence; but could you avoid the second by saying, more vaguely, "I suspect this fella is receiving rental income and not declaring it"?

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Replying to fawltybasil2575:
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By More unearned luck
30th Dec 2023 18:48

I suggest a New Year resolution for you Basil: "I will be less prolix". By expressing it with only those five word, you will get off to a flying start!

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Replying to More unearned luck:
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By I'msorryIhaven'taclue
30th Dec 2023 21:00

More unearned luck wrote:

By expressing it with only those five word, you will get off to a flying start!

Heh heh, I enjoyed the allusion to Dragonfly

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By fawltybasil2575
31st Dec 2023 16:12

@ TaxDragon (your post at 20.04 0n 29 December 2023),

One is strongly advised to adhere in careful detail to the guidance by NCA here:-

https://www.nationalcrimeagency.gov.uk/who-we-are/publications/650-guida.....

If one does so, then the answers to your questions are respectively "Yes" and "No".

@ More unearned luck (your post yesterday at 18.48).

Forgive me but (regardless of whether your advice is intended as a reply to my previous post particularly; this thread in general; or indeed my writing style throughout this site) may I respectfully make comment.

Since, when making my negligible contributions, I have in mind not just the respondents to thread opening questions, but also always the OP and all AWEB members who might read the thread (who might not have the extensive knowledge of you as an esteemed heavyweight contributor) there are at least three reasons why I intentionally adopt a writing style which includes a policy (which you clearly construe as verbosity) of repeating (for clarity and/or emphasis) particular words/phrases/thoughts. I of course fully respect your clearly contrary view.

Basil.

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By fawltybasil2575
31st Dec 2023 16:24

@ TaxDragon (your post at 20.04 on 29 December 2023).

One is strongly advised to adhere in careful detail to the guidance by NCA here:-

https://www.nationalcrimeagency.gov.uk/who-we-are/publications/650-guida.....

If one does so, then the answers to your questions are respectively "Yes" and "No".

@ More unearned luck (your post yesterday at 18.48).

Forgive me but (regardless of whether your advice is intended as a reply to my previous post particularly; this thread in general; or indeed my writing style throughout this site) may I respectfully make comment.

Since, when making my negligible contributions, I have in mind not just the respondents to thread opening questions, but also always the OP and all AWEB members who might read the thread (who might not have the extensive knowledge of you as an esteemed heavyweight contributor) there are at least three reasons why I intentionally adopt a writing style which includes a policy (which you clearly construe as verbosity) of repeating (for clarity and/or emphasis) particular words/phrases/thoughts. I of course fully respect your clearly contrary view.

Basil.

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Replying to fawltybasil2575:
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By Tax Dragon
31st Dec 2023 21:17

Thank you Basil.

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Replying to Insolvency Practitioner:
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By Wanderer
02nd Jan 2024 14:55

Seriously Lisa?

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Replying to Wanderer:
Lisa Thomas
By Lisa Thomas - Insolvency Practitioner
02nd Jan 2024 15:29

?

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Replying to Insolvency Practitioner:
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By Wanderer
02nd Jan 2024 15:32

Because what you are suggesting would, without the client's authority to disclose, be a breach of confidentiality & if done would make the accountant subject to discipline by their professional body.

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Replying to Wanderer:
Lisa Thomas
By Lisa Thomas - Insolvency Practitioner
02nd Jan 2024 15:54

Interesting, thanks.

I had assumed (wrongly it seems) that you would have a duty to notify HMRC - anonymously or otherwise in the same way as SAR reports to the NCA.

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Replying to Insolvency Practitioner:
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By FactChecker
02nd Jan 2024 17:32

Only if they're not your client (or possibly, although they're your client, you've become aware of the information outside of those activities for which you have an engagement with your client) - in which case you may have an 'opportunity' (not duty) to dob them in.

[I did hear of a possibly apocryphal story where the agent 'happened' to run into client's largest customer and, over an evening's drinking, let slip that HE couldn't use the whistle-blower reporting option ... and the other party took the hint/bait to do the deed. Of course still not allowed, but less likely to be traced back.]!

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Replying to FactChecker:
Lisa Thomas
By Lisa Thomas - Insolvency Practitioner
03rd Jan 2024 09:43

Thanks for clarifying.

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Replying to Insolvency Practitioner:
David Winch
By David Winch
03rd Jan 2024 09:42

Insolvency Practitioner wrote:

Interesting, thanks.

I had assumed (wrongly it seems) that you would have a duty to notify HMRC - anonymously or otherwise in the same way as SAR reports to the NCA.


Hi Lisa, in relation to Suspicious Activity Reports to the NCA -
1. There is a legal requirement to make a SAR to the NCA under s330 PoCA 2002
2. A disclosure to the NCA does not breach any obligation of confidentiality because s337 PoCA 2002 'permits' such a disclosure.
But neither of these statutory provisions would apply to a disclosure to HMRC in the circumstances. There is no similar duty to disclose to HMRC.
David
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Replying to davidwinch:
Lisa Thomas
By Lisa Thomas - Insolvency Practitioner
03rd Jan 2024 09:52

Thanks David.

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Replying to Insolvency Practitioner:
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By philaccountant
03rd Jan 2024 10:10

To be fair, the system is patently stupid:

*We report suspicions to the NCA.
*They take (seemingly) no notice (in mine and the experience of most on here, judging by other comments and feedback I've seen), as they can't handle the caseload they have.
*We hope they are prioritising the big fish (though the evidence of anything being done seems scant - see Russian billions, London Laundromat, Big 4 auditing "errors" etc etc).
*The clients get away (at least for a while) with tax fraud.
*Clients tell their mates that they got away with it and they can too.

And thus the fraudulent system perpetuates itself.

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Replying to philaccountant:
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By Tax Dragon
03rd Jan 2024 10:16

It is not the job of NCA to provide progress reports to people who report reasonable suspicion(s).

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By JD
03rd Jan 2024 13:42

It's not just the NCA's lack of action. I regularly find myself disappointed by new accountants (mainly chartered level) who are more than willing to accept an engagement, despite asking, and have been advised of any matters that should be considered, before acceptance.

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Replying to JD:
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By More unearned luck
04th Jan 2024 13:16

How do you know how the new accountants reacted to your response their courtesy letter?

Also there is nothing unethical in taking on your dodgy ex-clients if it is to help them to get straight with HMRC.

(Why do you have so many dodgy clients?)

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Replying to More unearned luck:
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By JD
05th Jan 2024 11:07

You have no basis for knowing what standard of clients we act for, thank you, more unearned luck.

My comment, should indicate to you clearly that we tend to be prepared to draw a strong line with a client, to maintain standards, where others do not seem to.

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By More unearned luck
05th Jan 2024 12:37

Well done you for maintaining professional standards when all those around you have lower or no standards.

"Yours is the Earth and everything that’s in it,
And—which is more—you’ll be a Man, my son!"

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