FHL Capital allowances/Capital expenditure

I need some advice please

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A new client has come to me with a £18k loss carried forward from 2019/2020. That loss allegedly arose from Capital allowances previously claimed.

I asked my client if she could provide records of the capital allowances claimed and capital expenditure. She said she couldn't and suggested I contact her previous accountant, which I did. He has not kept any records either. Obviously that rang wrong in my head straight away.

As it turns out I met her previous accountant in person yesterday and he explained to me that when she incurred expenses to renovate the flat she asked him to claim all the expenses so she would incur a loss and not pay any tax. Whether the expenses were allowed or not, the previous accountant claimed everything. My initial suspicion that something was wrong was confirmed.
 

Now my questions are: Am I supposed to correct this one way or the other? Or should I just say to my client there will be no capital expenditure to use against Capital Gains the day she sells the flat?

PS: I also noticed she is paying Council tax as opposed to Business rates. Another thing I'm going to have to entangle.

If anyone could give me any advice please it would be greatly appreciated. Many thanks.

 

Replies (5)

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Scooby
By gainsborough
12th Feb 2022 09:42

All you can do is tell the client you believe the loss figure is wrong and quote to correct it (I would quote on the high side - sounds like getting any useful information could be tricky). Be firm - no proof, no claim.

If client refuses to correct the situation, resign and consider your MLR obligations.

Do you know why she switched accountants? Is it possible her previous one was not comfortable with what was going on and resigned?

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Replying to gainsborough:
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By Cylhia66
12th Feb 2022 10:34

Thank you gainsborough. That's a very good advice. I appreciate it. I will have to think of the right moment and best way to approach this with her. But ultimately if she doesn't agree to make a correction we will have to walk away from each other.

Her previous accountant decided to end his career due to health issues. As far as I am aware he was satisfied to submit these accounts knowing forewell the claims were incorrect. That's what he admitted to me. He agreed to satisfy his client's request who wanted to avoid having to pay any tax.

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Replying to Cylhia66:
Scooby
By gainsborough
12th Feb 2022 12:14

Good luck.

At the end of the day, just make sure that you look after your own interests. Any client that pressured their previous accountant into submitting figures without any form of proof and then knowingly signed a tax return showing an incorrect loss is one to be wary of. Make sure you either document your suggestions to correct in writing or follow up any phone calls/meetings with some meeting notes to client confirming any points discussed. This type is always quick to blame someone else when things don't go their way.

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By plummy1
13th Feb 2022 01:29

Claiming capital allowances on the "Plant & Machinery Fixtures" in the property does not affect the base cost for capital gains purposes. This is a common misconception.

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By Hugo Fair
13th Feb 2022 11:52

But OP said "there will be no capital expenditure to use against Capital Gains the day she sells the flat?"

I presume that refers to not being able to 'use' the renovation expenses for a second time ... which has nothing to do with 'not affecting the base cost for CGT purposes' does it? Feel free to expound if the pig has just soared over my head.

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