Full enquiry on first client

HMRC have opened a full enquiry into the CT return of the first client of a new practice

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Hi

I started up as a solo practitioner last year and the first company to become a client has now had a full tax enquiry opened on the first tax return I filed for it. Does anyone know whether the reason for the enquiry would be because I am a new practice? Can I expect the same to happen with other new clients?

The enquiry is going to cause stress and hassle for the client, which I am embarressed about given that he was good enough to take a chance in a new firm. It seems very unfair to put this upon somebody supporting a new small business.

I have spoken to the officer carrying out the enquiry and he said that he couldn't disclose the reason why the enquiry has been instigated, however, he did say that he would have nothing to with the fact that I am a new practice. I have mentioned this to the client, but he feels it is too big of a coincidence. 

I'd appreciate anyones thoughts. 

Chris

Replies (31)

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By Maslins
06th Aug 2018 11:32

I'd imagine most enquiries are triggered by a number sticking out like a sore thumb. HMRC will inevitably have details lots of businesses, so will have an idea of what kinds of income/expenditure to expect. If yours differs wildly, they may ask questions.

I have wondered whether HMRC also have different accountants marked in some way. Eg some which they're confident do a good job, so their returns are more likely to get the green light, and others who regularly submit iffy stuff so tend to get looked at more often.

It could well just be bad luck. Surely clients don't leave an accountant because they get an enquiry? Of course you'll want to ensure you deal with it efficiently for the client...and if it were me I wouldn't even think about charging for that work. Assuming it comes back all clear, hopefully the client will be happy.

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Replying to Maslins:
RLI
By lionofludesch
06th Aug 2018 11:59

Maslins wrote:

I have wondered whether HMRC also have different accountants marked in some way.

That certainly used to be the case when we dealt with HMIT on a local basis. We all knew each other and respected each other's job.

Not so sure it's true these days but it could be. I get enquiries and I defend them vigorously but, I hope, fairly. Offhand, I can't recall the last time I conceded an add back - very possibly in the last century.

It's about being confident in what you've submitted on the client's behalf.

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Replying to lionofludesch:
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By chrisacc1985
06th Aug 2018 13:04

Thanks for the pointers Lion'. I don't have a great deal of experience with enquiries, so that's really useful.

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Replying to Maslins:
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By chrisacc1985
06th Aug 2018 13:03

Thanks Maslins. I have already told the client I won't be charging for the work, so hopefully if I am efficient he will stay on.

Recently had a different client leave after I told him I didn't believe he had a viable business. Finding it hard going working for myself at the minute!!

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Replying to chrisacc1985:
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By Maslins
06th Aug 2018 13:18

I genuinely believe an accountancy practice is one of the hardest businesses to start from scratch. I did it myself ~10 years ago.

There's so much trust involved in being an accountant, so business owners typically aren't up for "giving you a go" when you've got no track record, no existing clients recommending you etc. So many other businesses you can offer something cheap and cheerful to demonstrate your abilities, in the hope they'll then buy a bigger package. Tricky to do the same with accountancy.

The good news is once you've got up and running, it's relatively easy. By that I mean most of the work is recurring, and when you have a reasonable base of clients, they'll likely recommend you to their contacts if asked. So you can get a snowball effect. Best of luck with it!

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Replying to Maslins:
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By chrisacc1985
06th Aug 2018 12:59

DUPLICATE

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Red Leader
By Red Leader
06th Aug 2018 12:05

I can't ever remember getting a full enquiry on a CT case.

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By lesley.barnes
06th Aug 2018 12:10

Have you checked for any discrepancies between the accounts and the return you've prepared and the previous accounts? Can you explain any significant variances. Do the VAT returns stack up with the accounts? Did you get clearance and info from the previous accountant. Its difficult to help further without knowing what the inspector has requested to see. It is unlikely that HMRC have opened an enquiry because you are a new accountant. I think it is more likely something has stuck out like a sore thumb,they have received some info such as a SAR or they've inspected one of your clients customers and that has highlighted something.

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Replying to lesley.barnes:
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By chrisacc1985
06th Aug 2018 12:52

No the accounts are broadly in line with the previous years's, as is the tax return. I prepared this client's return when I worked for a different firm (before the partners sold up) so the methodology is exactly the same.

I would be very surprised if they have received a SAR as he has a profitable business and the client handles his affairs very straight forwardly.

Maybe one of the customers clients has been inspected, but I would be surprised if there is anything out of place from my client's point of view.

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By Duggimon
06th Aug 2018 12:13

Is there anything wrong with the return, anything contentious or any particular items that are often abused or gotten wrong?

If not and it's a basic return then just chalk it up to experience and take comfort knowing that HMRC will now have a record that you've had an enquiry into a return filed and they found nothing wrong, as I'm sure will be the case. Annoying but they do have to enquire into some tax returns.

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By slipknot08
06th Aug 2018 13:45

It would be worth referring the RO to CH40500 (https://www.gov.uk/hmrc-internal-manuals/compliance-handbook/ch40500) - HMRC's litigation and setttlement strategy "open and early dialogue" which could (should, I would argue - and I have had success in the past arguing that they ought to abide by this) include explaining to the person -
- what they are checking
- why they are checking it
- what could be wrong and why
- HMRC's assessment of the identified risks.

That might give you some valuable pointers as to what HMRC thinks is wrong, and might also enable you to reassure your client, if it is something easily answered?

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By bernard michael
06th Aug 2018 14:15

What did HMRC enquire into in their letters ??
Balance sheet items ?
P & L expenses?
Profitability ?

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Replying to bernard michael:
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By chrisacc1985
06th Aug 2018 15:18

They have asked for everything. Purchases and sales invoices, bank statements, diaries, accounts working papers, expense claims, details of estimates

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Replying to bernard michael:
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By chrisacc1985
06th Aug 2018 15:18

They have asked for everything. Purchases and sales invoices, bank statements, diaries, accounts working papers, expense claims, details of estimates

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Replying to chrisacc1985:
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By Cheshire
06th Aug 2018 16:33

What sector are they in?

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Replying to Cheshire:
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By chrisacc1985
06th Aug 2018 18:16

Gardening and cleaning

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By ohgoodgodno
06th Aug 2018 14:25

an enquiry can be triggered for a variety of reason's, it could down to the figures included in the CT600, a tip off about the client, or it could just be a random selection

I would say that it would be unusual to get a full enquiry straight off the bat, you'd normally expect some preliminary enquiries first that would would give an indication of HMRC's position and what they are are looking for.....has this not happened?

do you not offer fee protection insurance to cover your fees in the event of an enquiry? if you do and the client turned this down, I'd be charging for your time, unless it was as a result of your mistake

You don't say what your experience / qualifications are, only that this was your first client, assuming you've done similar work before

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Replying to ohgoodgodno:
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By chrisacc1985
06th Aug 2018 15:14

No preliminary enquiries, just requesting that we send all accounting records for the year to them for review.

I am ACA and CTA with 8 years of experiencing working for a 2 partner firm in South West London on OMB clients. At my previous firm we were very risk adverse and as a result we didn't undergo many enquiries whilst I was there.

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Slim
By Slim
06th Aug 2018 15:14

In my recent experience, if one figure looks odd they will request information on that to clarify, not conduct a full enquiry.

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Red Leader
By Red Leader
06th Aug 2018 15:47

Be careful about what you agree to send them. Others on here will be better placed to advise, but I suggest "diaries" are not part of the records they can demand to see normally.

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By Marion Hayes
06th Aug 2018 16:57

What is the clients business in?

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Replying to Marion Hayes:
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By chrisacc1985
06th Aug 2018 18:16

Gardening and cleaning

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By Marion Hayes
07th Aug 2018 15:36

Who do they work for? Joe Public or other businesses?
On the face of it they are a high risk for enquiry because potentially all the business could be cash based.
On this kind of enquiry it is common to ask for diaries to look for appointments but I would do the analysis myself.
The Inspector needs to know how the business operates.
If they carry out cleaning and gardening for other businesses, invoice them and then bank cheques or get bank transfers then explaining that to HMRC with your analysis of appointments matched to invoices should suffice.
If they only have a duplicate book recording cash payments from ordinary people I would recommend talking to a specialist and explaining to client that an enquiry is nothing to do with your new business. cash heavy businesses can trigger enquiries just by moving, not by who you are moving to.
Potential costs of getting it wrong far outweigh a specialists fee for a meeting to review records

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Replying to Marion Hayes:
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By chrisacc1985
08th Aug 2018 11:27

I don’t believe any customers pay cash.

Given what everyone has said here, it really does seem odd that this enquiry has arisen. Part of me wonders if there could have been a “tip off” by a vindictive manager at the firm who acquired my old firm.

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By KH
14th Aug 2018 11:33

About 15 years ago I got two investigations out of the blue. Eventually found out that this was because both clients of mine were distantly related to another enquiry ... one was a woman who had only just married the guy whose business was subject to an investigation, and the other woman was the mother of the married daughter ... replied to both investigations in full (about 30 individual queries on each), and got both rescinded instantly, while the daughter ended up divorcing the guy........ first time I had ever seen linked enquiries.

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By KateR
14th Aug 2018 12:22

Back in the day when SA first came in HMRC would pick a random selection of UTRs each year and give them a full enquiry whether there was anything ringing alarm bells or not. I had one such client, a lot of time spent and nothing to show for it by HMRC. Perhaps they are up to this little game again.

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By tedbuck
14th Aug 2018 14:29

I had one like this a couple of years ago which started because the client had returned gross interest as net interest because the bank (NatWest) had changed the way they dealt with interest. Full on into accounts and everything.

I got an interview with the HMRC inspector and all was revealed. It was a training exercise for a trainee investigator. Everything supplied and they went away happy and presumably trained!

You may not be suffering the same situation but you never know. They may, of course, be testing you for the future.

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By Jack the Lad
14th Aug 2018 17:59

Section 9A TMA 1970 Enquiries can arise for a number of reasons, none of them from a "random" inspection, whatever HMRC may say. It will not necessarily be your fault.

I have many years' experience in dealing with investigations and enquiries, including (in the "old days") attending Commissioners' Hearings, and recently conducted my first First-tier Tribunal Hearing.
Here are some of the things you should be doing:
1. I agree with slipknot08: you should ask HMRC to provide you with the precise reasons for their enquiry.
2. You should carefully review the accounts and return submitted to see if there are any obvious errors or omissions.
3. Having regard to the client's business, which presumably receives cash in hand, you should carry out a full and detailed cash review and ensure that you can adequately account for all cash expenditure from available cash income and bank withdrawals.
4. You should question the client very carefully about their modus operandi, and how they record income.
5. Check the expenditure claims carefully to ensure they are all wholly and exclusively incurred for the operation of the business, and have not slipped in any directors' personal expenses.

These are just the start. Other actions may be necessary BEFORE you give anything to HMRC, or attend an interview if requested. If they do request a meeting, do NOT allow the client to attend alone, and ensure that he is properly briefed beforehand, especially if you find errors or omissions. If there are any you have found, it is better to admit them beforehand, but ascertain the effects on the client's liabilities, in terms of interest etc. Penalties may be reduced or avoided by early admission as well as co-operation.

As regards your fees, as long as you have not made any mistakes, you are perfectly entitled to charge for your time, and should tell the client.

With reference to one of the comments above, HMRC used to have a "black book" of dodgy accountants on who they could not rely, and a "white book" of reliable accountants. The accounts etc submitted by the former attracted the most enquiries, obviously. This enquiry could have been started because it is a cash business, or because it is related to another business which had been the subject of a successful enquiry.

Good luck!

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By Mr J Andrews
16th Aug 2018 10:27

In my day , when the Inland Revenue - as it was then called - worked efficiently , the D.I. { District Inspector } kept a black book of local duff accountants where investigations - as they were then called - guaranteed the Inspector - as the grade was then called - a good result.
Whether such efficiency works on a wider scale in the factory farming HMRC debacle we now have , who knows.
One thing is for sure , it ain't because Chris is a new kid on the block. Despite their shortcomings , the Revenue don't operate that way.
The Enquiry would have been triggered by some obvious deviation of mark up , GPR . private use , living on fresh air …….God knows , the reasons are endless. Chris needs to gel up on the client's trade from a general perspective and possibly seek some expertise if , from the HMRC's line of questioning , he can smell a rat.
On a brighter note , the Enquiry may have been purely random.

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By bernard michael
16th Aug 2018 10:35

You forgot gossip in the pub

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Replying to bernard michael:
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By lionofludesch
16th Aug 2018 10:38

Unlikely these days with the Inspector based at least 500 miles from the client.

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