I have always had a core rule with clients, I only deal with them if i deal with everything they do, including personal tax returns.
A few years ago i broke that rule and took on the accounts for a successful company but the directors wanted to carry on using a different accountant to do SA returns (this is how the previous firm of accountants had also operated).
Finally the directors decided this year to use us to do their returns and yes there is a problem...
The SA returns show dividends that are in some cases tens of thousands of pounds different to the amounts shown in the accounts over the last six years at least.
My question is what adjustments are needed?
Can we tell HMRC and then point out that they are too late to assess (in most cases) or do we have to go back all the years and agree a settlement?
In one year there is an enquiry into a specific part of the tax returns but NOT dividends.
Replies (12)
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First things first
Surely the first thing to do is to ask your predecessors for a breakdown of the amounts in question showing where they got the figures from.
Accounts vs. Tax returns
At risk of stating the obvious, the dividends shown in the accounts are (or at least, should be) the total dividends paid in the company's accounting year and the dividends in each individual director's tax return should be the dividends they have been paid on their shares in the tax year. Unless the company's year-end is 5th April, which would be unusual, you would expect some differences.
I agree with John - you need a schedule of the dividend payments made by the company.
I assume that the directors are higher rate taxpayers as otherwise, there would be no additional tax to pay even if there were additional dividends to disclose.
You can't do anything ...
... until you have established what has happened (and which figures are correct). Though I assume that having prepared the accounts you have seen all relevant dividend paperwork and so are happy that the dividend amounts in the accounts are correct.
Assuming therefore that the tax returns are incorrect your course of action is straightforward - assuming that you are bound by the ethical rules of a professional body you must advise your client to remedy the situation. Your next steps would then depend on their response. And that response - together with the reason for the incorrect tax returns (assuming that they are in fact incorrect) - should determine your action under Money Laundering reporting rules.
If tax has been underpaid as a result of incorrect returns ...
Then what makes you think that, subject to time limits, it shouldn't be paid?
So you don't have schedules?
You need schedules of the dividends returned, not just the dividends paid by the company.
You say HMRC are too late to assess, so I assume the returned amounts are less than the divs paid.
Are you sure they haven't been "allocated " to wives etc in an attempt to reduce taxes?
What do you mean by no discovery?
I think you are being a tad optimistic.
You have a duty, if client agrees, to inform HMRC of any tax underpaid - for all years involved. It will then be up to HMRC to raise discovery assessments within applicable time limits. 4 years if they're satisfied that it was sheer carelessness, but if they think there was more to it than that ...
Discovery
I agree with BKD. When you tell HMRC, they discover that the returns were wrong.
You don't avoid discovery by merely volunteering the information.
Well,,,
... the publicity is wrong. You're only in the clear in respect of an incorrect return if the return itself contained sufficient information to allow an HMRC Officer to deduce that there may be something wrong with it and he doesn't take action in time. Otherwise ... well, that is what discovery provisions are all about.