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Directors tax returns charged to co. Who's liable?

No engagement letter directly with directors = risk. If sued no engagement letter to protect

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So I've seen quite a few threads on the correct tax treatment for directors' tax returns charged to the company but no-one seems to be answering this basic question:

If your engagement letter is with the company to prepare the directors' SA (which means your contract is with the company, not them) and the directors subsequently sue you for messing up their personal return, how does this play out liability wise?

On the one hand, your engagement is with the company, so it would have to be the company that sues you. Unless there is a duty of care to the directors (which it seems safe to assume there is), in which case you are completely unprotected by your engagement letter as you don't have one directly with them, just the company.

Really interested in your thoughts on how to manage this?

Could you address the letter to both the company and the directors, or specify that the directors, in relation to their personal tax are party to the engagement letter.

I know the gold standard method is to have an engagement letter directly with directors personally, although then it would be more difficult to bill the company for the entire bill such as the case in packaged services.

Am I over thinking this?

Replies (5)

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By Moonbeam
25th May 2018 19:16

You can have a separate contract with the directors, and put the majority of the cost in the contract to the company. Why would there be a problem with that assuming the directors were the sole shareholders?

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Replying to Moonbeam:
By Kylo Ren
25th May 2018 20:02

Thanks for your reply. Yes that is one solution but it kind of involves unpackaging the packaged up service.
For example a firm charges 110 per month to a company for accounts CT vat PAYE and 1 directors return. However you would have to have in the engagement letter, say £100 per month charged to the company and £10 per month charged to the director.
I suppose you could still collect the 110 from the company and then adjust accordingly
It works but is quite inelegant.

I don't imagine this is how in reality most firms handle it but I could be wrong

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Replying to Kylo Ren:
By atleastisoundknowledgable...
26th May 2018 14:25

We would have a LoE with the co for £110pcm & a LoE with the director for £nil (but have a clause allowing us to charge an undefined amount if we wished).

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By frankfx
25th May 2018 23:02

advise director that £x plus VAT of the monthly bundle is for tax return.

Treat that amount as a BIK or

Debit DCA.

In the event that additional tax or personal advice is provided to the director , you may need to consider a separate engagement letter.

this letter should also explain how the the director is to be billed........ personally or through company.

an aside ..........

many directors charge their mobile phone to company AND the home broadband and phone bundle.... as much work is done from home office

the monthly bank payments from limited company

all to frequently these contracts were in existence before limited company formed.

yet director fails to have the contracts and invoices in company name............... BIK and DCA issues then need addressing..... are they addressed.

From cases i take on the point is seldom addressed, and in many cases senior employees have their mobile costs picked up by the company.....wrongly for tax compliance purposes.

does the adviser turn a blind eye to the history he has inherited !?

Gold standard advice sometimes goes down like a lead balloon.

More so when you offer a Tax and VAT compliance health check..... which many firms promote, perhaps to win new business.

The bundled fee for accounting and tax services therefore merits scrutiny.

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By thevaliant
26th May 2018 21:42

I think this is a question for the lawyers.

But I would say you DO have a contract with the directors personally, it's just unwritten, like the same contract you form when you buy a bar of chocolate from a shop. A lot of implied terms.

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