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Errors in previous year's company accounts

What to do regarding errors made by previous accountants in company accounts/corporation tax return

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I run a tiny media company (limited) and have recently changed accountants. On preparing this year's unaudited company accounts, the current accountant has found errors in the previous accounts. The errors are an understated bank balance brought forward of £2600, a VAT debtor omitted and a rent deposit put through as rent and the debtor omitted. In total a sum of £3,400. As the company already had an accounting loss, the loss brought forward will just be reduced so no tax outstanding. 

The current accountant believes these are 'material' and 'significant' errors and is insistent that both the accounts and tax returns should be prepared from scratch in case there are more errors and refiled to HMRC and Companies House. My previous accountant has suggested putting a journal through this year’s accounts reducing rent costs by the sum and the other amendments to be made as balance sheet adjustments with no need to amend the prior year’s tax return. 

I have contacted HMRC and they are saying that the amendments should be made online and refiled. The old accountant refuses to do this unless I re-engage them as my accountants, the new one will only agree to make a prior year adjustment together with a letter to HMRC to disclose the errors and inform them that the losses claimed are incorrect. They want me to pay for a completely new set of accounts. 

Please can someone give me some advice as I’m now in the position of either forking out money for more accounts to be done or attempting to make these changes myself online as advised by HMRC as an alternative option. 

I would be grateful for any thoughts before I begin the search for yet another accountant!

Thank you.

Replies (19)

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By johngroganjga
21st Nov 2018 17:43

If there is no immediate tax effect PYA only in current year’s accounts is the way to go.

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Replying to johngroganjga:
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By Kay9
21st Nov 2018 19:09

Many thanks John. That would be my preferred option. Unfortunately, the new accountant has said she won't file without a letter to HMRC and now that I've contacted them to discuss this I presume I'll be expected to follow their advice and amend the accounts and refile.

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Replying to Kay9:
By johngroganjga
21st Nov 2018 19:56

Perhaps you need another new accountant.

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Stewie
By Stewie Griffin
21st Nov 2018 19:59

I agree with John.

Sounds like the Accountant you've moved to is all about appearing self-righteous, rather than doing the best by his client (you).

How's he going to be if there's a real issue you need his support with?

Maybe you need to move accountant again, to one that's more supportive

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By Kay9
21st Nov 2018 20:38

Thanks John and Stewie - grateful to have some independent advice. I too have come to the same conclusion.

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By Manchester_man
22nd Nov 2018 01:13

Bear in mind that the new (but soon to be ex) accountant sounds as though he may very likely submit a ML report disclosing the errors which he feels are material.

I agree that if there is no immediate tax effect, then it is a waste of everyone's time writing to HMRC and amending previous accounts / tax return.

This Accountant doesn't seem to be so pragmatic, hence my suspician that he might well submit a report on the basis that losses have been overstated.

Sounds a bit like an ex boss of mine many moons ago!

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Replying to Manchester_man:
By johngroganjga
22nd Nov 2018 08:48

ML reports are only for suspicions about acquisitive crimes, not about accounting errors with no other effect, especially when they have been corrected.

Of course you may be right that the soon to be ex accountant may not understand this and report anyway, but I think it less likely than you appear to.

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ALISK
By atleastisoundknowledgable...
22nd Nov 2018 08:04

TBH I would just lower the rent charge this year and ‘lose’ the bank error within the P&L somewhere, assuming it doesn’t make the P&L look stupid. If it does, post as a PYA.

Same net affect. I was taught training that I work for the client not HMRC, so wouldn’t dream of writing to HMRC - waste of everyone’s time with no result.

Agree with everyone else - change accountants for the same reasons mentioned.

Unfortunately I also agree with M’cer Man. One sneaky thing to do to try and stop the current accountant filing a ML report might be to tell them that the old accountant will redo the accounts, but then find firm #3 instead and get them to write to firm #1 for clearance ie pretend #2 never existed. #2 could check whether amended accounts have been filed, but they won’t be ar5ed / will forget. NB this will only work if #2 hasn’t done any work for you eg payroll, unless you have full access to everything. You says it’s a tiny company- if it’s just you on the payroll then that shouldn’t be a problem, VAT return (if applic) will (prob) have been done on your software. If you’re not the subscriber ask the accountant to transfer the licence to you. This idea should (in theory) work.

Of course, you might just think fuch it, who cares about the ML, in all seriousness, what’ll actually happen? Nothing. (Caveat - probably).

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Replying to atleastisoundknowledgable...:
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By Manchester_man
22nd Nov 2018 10:46

Agreed, now that is indeed a clever tactic. It would make the second accountant feel less avenged and would also indicate that the accounts are being corrected, so nothing to report.

John, whilst there is no loss of tax (yet), if no adjustment is made (I also agree it's not worth adjusting) and the second accountant feels that the client is ignoring his advice to make a 'disclosure' (by moving on to a third accountant) I think it is still a distinct possibility that this accountant will take it upon himself to make the 'disclosure' himself, to cover himself, regardless of how misguided that may be.

The accountant clearly thinks it is material to the extent that he is insisting that a disclosure be made, even though this train of thought is a load of b0110cks.

I would without doubt do as ALISK suggests above.

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Replying to Manchester_man:
ALISK
By atleastisoundknowledgable...
22nd Nov 2018 12:01

Manchester_man wrote:

Agreed, now that is indeed a clever tactic.

I would without doubt do as ALISK suggests above.

I don’t get that very often ... think I’ll frame it.

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By thomas34
22nd Nov 2018 08:57

Find another accountant. If he decides that the errors are "material" the best solution is to create a PYA. On the figures you quote I'd be surprised if the errors are material certainly in my book and there appears to be no loss of tax to HMG. As long as the balance sheet is correct in year 2 who cares?

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By elvisisking
22nd Nov 2018 10:12

It would be interesting to know why you changed accountants? Clearly your previous accountant has made mistakes (that on it's own is good reason enough), but they have come back with what seems to be universally agreed is the most pragmatic solution.

Have you considered asking your previous accountant for a recommendation for a new local accountant? Whilst it may seem slightly backwards, I regularly refer and receive referalls from local practices where a client has come in and would be better suited elsewhere.

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By andy.partridge
22nd Nov 2018 10:35

If you start amending and filing accounts yourself it will indicate you have no faith in your accountant which justifies leaving them. Thing is, what you are proposing makes you something of a maverick and could make it difficult to find a firm to take you on.

Rule 1 - don't phone HMRC if you have a tax agent. Rule 2 - treat their advice with extreme caution.

As an aside, why would you authorise the filing of accounts if the bank balance was so obviously wrong? You have to take a portion of the blame for your predicament.

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By Kay9
22nd Nov 2018 13:10

Thank you to everyone who has taken the time to give me their advice - most grateful. I only wish I had one of you as my accountant!

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Teignmouth
By Paul Scholes
22nd Nov 2018 13:23

I had exactly the same situation last year with a new client, with many errors in the order of £10K to £20K going back several years.

If the errors were discovered soon after submission of the previous year's accounts then yes, I would have expected those to be corrected and resubmitted however this is a pointless exercise if the next year's accounts are due as you can deal with the corrections by prior period adjustment and suitable note in the accounts.

I did this and amended the previous year's tax return for the errors occurring in that year attaching this year's accounts and a letter to HMRC explaining the whole thing.

Submitting accounts with prior period adjustments and, if necessary, an amended CT return for the previous year is a common occurrence and HMRC can not insist on a new set of accounts for that year.

With regard to your previous accountant, the suggestion to correct everything in the current year just reinforces the impression that they don't know what they are doing. In other previous cases, where errors were discovered soon after the event, my clients gave the accountant the option of correcting and submitting themselves, at no cost, or getting me to do it with the accountant covering my fees.

Although it may all be too much grief you may like to consider a claim against them for bad work, with a refund of fees, or, at the very least, a complaint to their regulatory body, if they have one.

Good luck

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Replying to Paul Scholes:
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By andy.partridge
22nd Nov 2018 14:13

A riddle.
Paul, who has resigned from his professional body, recommends that dissatisfied clients complain to the accountant's regulatory body.
Hmmm, just thinking that one through.

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Replying to andy.partridge:
Teignmouth
By Paul Scholes
23rd Nov 2018 14:39

Wo Andy, get back in the knife drawer.

Should I not have suggested a complaint to a reg body "if they have one"? Or are you just in need of point scoring of some kind?

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Replying to Paul Scholes:
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By andy.partridge
23rd Nov 2018 14:54

Oh Paul, the message is the right one but it's coming from the wrong messenger. That's obvious and it was unlike you to leave yourself open to the charge of hypocrisy. The more you complain, the greater the riddle.

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Replying to Paul Scholes:
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By Tax Dragon
22nd Nov 2018 14:19

If I may add to that, it is disappointing that so many of the previous respondents, on reaching judgments based on hearsay, rushed to criticise your (current) accountant who had reached a judgment based on knowledge. It’s even more disappointing that they recommend you leave that new accountant for having the integrity to stand his or her ground. I agree with Paul (and Andy). It sounds like it is your first accountant (and to some extent you) that is at fault.

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