Share this content

Custody of client's money to pay their taxes?

Client asking if he can transfer me money to make his tax payments on his behalf.

Didn't find your answer?

Most of my clients are sole-traders who are always concerned and scared with how and when to pay. 

A client just asked me if it is possible for him to transfer me on a weekly basis the VAT collected from his customers, as "I don't want to see money in my bank account that isn't mine yet". He would like to make prepayments for his future SA Tax return too. Apparently he was doing this with his previous accountants. The contractor was paying the accountants directly, and the accountants paying my client the net figure and leaving a "tax pot" from where they even charged the accountancy fees.

I never saw this before so my questions would be:
a) Is it allowed for an accountant to provide this as a service under UK Law? I would say it is allowed if I keep the money in a "Clients Account" as noted below. 
b) If so, does any of you provide this service regularly and how much do you charge?
c) What are the problems you encountered providing this service?  

FYI, this is an extract of the Code of Ethics of my IFA Practising Certificate:
"A professional accountant shall not assume custody of client money or other assets unless
permitted to do so by law and in accordance with any conditions under which such custody
may be taken. 
A professional accountant entrusted with money or other assets belonging to others shall:
(a) Comply with the laws and regulations relevant to holding and accounting for the assets;
(b) Keep the assets separately from personal or firm assets;
(c) Use the assets only for the purpose for which they are intended; and
(d) Be ready at all times to account for the assets and any income, dividends, or gains
generated, to any individuals entitled to that accounting."

Replies (26)

Please login or register to join the discussion.

avatar
By adam.arca
01st Jul 2021 13:22

Why on earth would you want to do that?

You won't get any kudos for that, just brickbats if (or more likely when) it goes wrong.

Tell your client to man up and just open a deposit a/c in his own name.

Thanks (3)
avatar
By lesley.barnes
01st Jul 2021 13:26

Is the client incaperable of setting up a bank account himself to transfer the money to? I wouldn't be holding on to clients money for them. If you want to do this I think you probably need to speak to your accountancy body. Not sure in your case with IFA but if I had practice assurance visit they would check client accounts.

Thanks (3)
Replying to lesley.barnes:
avatar
By Paul Crowley
01st Jul 2021 17:17

Client accounts are just trouble.

Thanks (4)
seneca
By Seneca
01st Jul 2021 13:46

Thank you both.
I did recommend the Deposit Account (although I had another client who tried to set up the Direct Debit from a Deposit Account and HMRC system did not allow it so he has to make the VAT payments manually).

From your replies I realise this is not common at all. My client's disappointment about the previous accountant offering this service took me by surprise.

I will follow your advice and altogether decline the service offer.

Thanks (0)
Replying to Seneca:
avatar
By Hugo Fair
01st Jul 2021 14:53

Your client who "tried to set up the Direct Debit from a Deposit Account and HMRC system did not allow it so he has to make the VAT payments manually" ...

Presumably obvious but:
a) the account into which he transfers (i.e. deposits) money for future liabilities doesn't have to be an official Deposit Account, it can just be a secondary current account. It's not as though nowadays there's any financial benefit from a Deposit Account with the kind of balances I'm presuming ... and in this scenario the DD will be accepted by HMRC.
b) if he insists on using a formal Deposit Account, there's nothing to stop him from making a transfer to his current account when the next tax bill is due (as notified under the DD scheme) ... so again he can set up the DD with HMRC (but on his current account).

Thanks (3)
Replying to Seneca:
avatar
By Leywood
01st Jul 2021 15:38

Its not HMRC who disallow that, its the Banks. Most of them anyway.

But he doesnt need to make the VAT payments manually to HMRC, he just needs to set up a reminder to transfer the funds back to his current account a few days/day before the D/D is due. A ping on his phone will do it. Its not difficult.

Glad to see you are declining, it would be a rocky road for sure.

Thanks (2)
By ireallyshouldknowthisbut
01st Jul 2021 14:57

Two bank accounts in his name would be the normal way to manage this sort of thing.

Client accounts = mega hassle.

Thanks (2)
By Duggimon
01st Jul 2021 15:59

We have a client account we use to hold client's money for situations where it's needed. It's a pain and we try and discourage it.

If my client was absolutely insistent on setting this up I would think an additional fee on top of the normal fees somewhere in the range of £2,000-£3,000.

There is a lot of regulation round a client account and you need to administer it really carefully, it's not something to introduce on behalf of someone who can't work out how to leave 1/3 of his profits in his bank.

Thanks (2)
Replying to Duggimon:
seneca
By Seneca
01st Jul 2021 17:17

He is a CIS subcontractor and I charge him £35 per month so £2000 fee would be interesting!
Thank you to every single one of you for the responses, they were very helpful and opened my eyes.

Thanks (1)
Replying to Seneca:
seneca
By Seneca
01st Jul 2021 17:21

* VAT coming from jobs out of CIS

Thanks (0)
avatar
By Paul Crowley
01st Jul 2021 18:27

Does not sound to me as if prior accountant was complying with the client money rules.
But just an opinion.
Was accountant actually operating an account in the name of the client?

Thanks (1)
Replying to Paul Crowley:
seneca
By Seneca
02nd Jul 2021 09:17

The previous accountants are a company called Securitax. Somehow they agreed with my client's clients to get paid for my client ́s fees. They then transferred my client all the fees net of taxes and accountancy fees, so he didn't have to worry about paying late. All was agreed on the Engagement Letter.
My client had got used to this method so he was requesting me to do the same.
They were charging him £15 per week.

Thanks (0)
Replying to Seneca:
avatar
By Hugo Fair
02nd Jul 2021 12:12

On the surface, not a bad deal (depending on volumes) ... but company website only provides tel no (not address or even town where based). So a problem if you end up in dispute.

What caused your client to leave them?
We've certainly had their unhappy clients bemoaning their fate on here before - see https://www.accountingweb.co.uk/any-answers/anyone-come-across-securitax

Thanks (2)
Replying to Hugo Fair:
seneca
By Seneca
02nd Jul 2021 13:52

I see they are not new here then.
My client didn't have problems with them but was told by other colleagues that they were paying too much accountancy services just for sole trade services. The fact he is Spanish (like me) was a plus.
Apart from the high fees and the rare way to keep their money on "tax pots", they were not checking with them at all the VAT returns before submission. I kind of understand this, as all my VAT clients just rely on the numbers I give them on the DRAFT VAT return but I am still sending it to them before submission.

Thanks (0)
Replying to Seneca:
avatar
By johnjenkins
06th Jul 2021 10:14

There are a few Accountants that offer management services but they will be set up for this and charge accordingly. I have only known it for small to medium companies where the owner wants to concentrate on work rather than management. You have to look at the fee arrangement. if the Accountant charges say £20k a year and in house would cost £30k to £40k then it could be worthwhile.
I receive CIS refunds on behalf of clients and have a treasury account set up purely to deal with this but I certainly wouldn't take on something that you have described.

Thanks (1)
By mydoghasfleas
06th Jul 2021 12:05

Do not do it. It can only end badly.

Professional guidance is not to do it. That guidance is there for a reason.

Common sense should tell you not to do it.

The advice is to not hold client funds by extrapolation I would say that advice means do not have access to the client's bank account, even if it an account solely to deal with the tax.

Thanks (2)
Replying to mydoghasfleas:
avatar
By Hugo Fair
06th Jul 2021 12:22

"I would say that advice means do not have access to the client's bank account"

Whilst I don't disagree with the thinking behind that statement (or indeed your other ones), it's not automatically valid in all circumstances.
For instance ... if you provide payroll services and have jumped through the hoops to be registered as a BACS Bureau, then you can indeed directly access the client's account to authorise transactions that both pay staff and HMRC.

Thanks (1)
Replying to Hugo Fair:
By mydoghasfleas
07th Jul 2021 16:25

There's always an exception for any rule. On this one, as you say, there are hoops to jump through and theoretically at least they restrict who can be paid.

I imagine there is an additional insurance cost you carry because the insurers do not ask, "Do you handle client funds?" for the sake of reducing premiums. Whenever we get to that question, the foremost thought is, "Really? Do you not think we pay enough already?"

Thanks (0)
avatar
By David Gordon FCCA
06th Jul 2021 15:50

My practice has always collected tax from, and paid it on behalf of clients.
But
It means the practice must retain robust reconciled clients' account records.
But
It is professional life-saving, keeping fees income separate from tax payments.
Immediately money is received from the client, the deemed fees part is transferred to office account.
I do not charge separately for this.
Over the years I have found that the time and stress saved through knowing what tax the client has paid and when, with avoiding penalties and chasers, has more than compensated for the small amount of time taken up.
Especially when HMRC loses or miss-posts a payment.
PS
Ensure that your bank is aware of your system, and is clearly instructed to charge any bank fees to office account not clients' account. Otherwise your reconciliation will go to pot.
Some of you seem to lead very sheltered lives. Bob the builder or Pete the plumber build houses or fix pipes, they don't do accounting.
Providing this service over the years has been much appreciated, and simply included in general overall fees.
you are servants of your clients. Your well being depends on their well being.
Providing you are paid for work done, this is all that matters.
They can live without you, you for bread and butter need them. So providing it is legal, and paid for, you do whatever they ask, without your making snide remarks.

Thanks (1)
Replying to David Gordon FCCA:
paddle steamer
By DJKL
06th Jul 2021 16:54

Are there any rules regarding for how long of the quantum of client funds that can stay in a general client account before they need transferred to a client account in the client's individual name?

The reason I ask is there certainly are constraints re solicitors up here , do accountancy bodies have less stringent rules?

Thanks (0)
Replying to David Gordon FCCA:
seneca
By Seneca
07th Jul 2021 23:47

Much appreciated comment!

Thanks (0)
Red Leader
By Red Leader
07th Jul 2021 17:18

I love the Father Ted quote "the money was just resting in my account."

Thanks (1)
Kitten
By Hazel Accounts
08th Jul 2021 12:07

"He would like to make prepayments for his future SA Tax return too"

HMRC allow you to do this (I have a client who pays £200pw and has been for years). You need to set up a plan I believe - more info at bottom of this page - see section

If you want to make regular payments in advance
https://www.gov.uk/pay-self-assessment-tax-bill/pay-in-instalments

Thanks (1)
avatar
By David Gordon FCCA
08th Jul 2021 12:43

DEAR DJKL,
When I underwent my ACCA inspection, there was no adverse comment.
But
Accountants are not similar to solicitors. Solicitors mostly handle sums of money magnitudes greater. This is reflected in their PI premiums.
Also
I do not hold money on Spec or as stakeholder for business or investment ventures.
For this, not least, your PI insurers will need to know and will raise your premium through the roof.
That is I will only hold funds for known tax liabilities with set payment dates.
Our clients' payrolls program includes a facility for entering PAYE as it is paid, a copy of the tax payments record is sent to client with the monthly payroll.
Dear adamarca.
Sorry but, your comment is sadly just another example of correspondents not thinking things through.
if the client is a ltd co, and the director does what you suggest:
Then:
Except and unless there is a correctly minuted meeting, with a witnessed agreement attached, to the effect that the funds are held on trust pp the Ltd Co, HMRC may treat these transfers of funds as cash payments to directors.
The bank should also have a copy of said agreement, and should confirm that it will not hold those funds against the director's personal liabilities.
The point is, a person aware of his or her own fallibility prudently wishes to put at least a small fence between him or herself and temptation. Do you not think this is constructive thinking?

Thanks (0)
avatar
By Tax Dragon
09th Jul 2021 07:19

Questions like this make me wonder what the big firms do. (Probably pass Bob and Pete's building and plumbing partnership on to a more suitably-sized accounting firm, obvs, but I mean in terms of operating client accounts. Do they do it? If not, why not?)

There is of course law, regulation and guidance about what you can and can't do. And as DJKL says, the law is different depending on quantum you hold on a client's behalf and the period for which you hold it. (I don't know enough to tell you the rules but I do know they exist. If you are still seriously thinking about offering this service, you really do need to find out what the rules are. David Gordon FCCA's comments do not tell you the rules. Nor even how to find out what they are.)

Thanks (0)
avatar
By David Gordon FCCA
12th Jul 2021 12:32

The comment about the "Rules" I do expect that colleagues before asking questions via Accounting Web, have looked up the Rule-book.
As regards the "Big 4", I know of at least one of them which used to pass small clients to qualified staff members to deal with privately. I presume as a sort of perk of trade, and on the hope that occasionally the acorn would grow into an oak tree.

Thanks (0)
Share this content