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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.

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05th Jun 2015 14:18

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.

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05th Jun 2015 16:30

ah well John

That is already in progress and i await the answer with some interest.

 

When i get the answer which i fully expect to be "Your clients supplied us with the relevant information and signed the SA returns approving them."

 

I am still left with the question of do my clients have to pay the tax if they pre-empt any discovery by HMRC by notifying of the differences?

 

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05th Jun 2015 16:48

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.

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By BKD
05th Jun 2015 16:48

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.

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05th Jun 2015 16:57

I have

schedules of the dividends and that is why i know that the figures are wrong.

 

The accounts dividends are scheduled by date and amount, the tax returns are just totals and no the year end does not match the tax year but the amounts are way out, even allowing for timing differences.

 

I fully appreciate the MLR etc requirements and i will be discussing the tax position with the clients and if they have to correct it and wont then they will be out the door.

 

I will be advising the client to notify HMRC accordingly but the question is still, does the tax need to be paid - because that is i am sure going to be question number two, number one being who's fault is this?

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By BKD
05th Jun 2015 17:09

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?

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By pawncob
05th Jun 2015 17:11

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?

 

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05th Jun 2015 17:55

OK so

The wives are not shareholders

The returned divs are less than the accounts

The SA returns have all been submitted on time and with the exception of the 2012/3 tax year there are no enquiries and there have been no queries.

If they are in time and no enquiries within the 12 months following submission HMRC and we tell HMRC about the mistake there is no discovery, or am i being overly optimistic for a Friday?

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By BKD
05th Jun 2015 18:08

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 ...

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06th Jun 2015 09:15

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.

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06th Jun 2015 11:19

Thanks for all that

I did think that would be the answer because we have recently had a letter from HMRC on a different client where the client had forgotten to tell us about a small job he had in 2011/12. HMRC have reopened the return on the basis that it is an obvious omission and should be corrected.

 

I only asked because all the publicity is around get the return in on time, wait 12 months and you are clear, and i am sure that is the comment i will get back from the clients.

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By BKD
06th Jun 2015 11:38

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.

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