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Is my client asking me to do something dodgy?!

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I have a potential new client who started self employment in 2019 and needs a tax return for a mortgage application. She asked me if I could produce a set of accounts and tax return and strike a balance between her not needing to pay much tax but looking profitable enough to be accepted  mortgage. I explained that I can give advice on what she might be able to claim for etc but I have to produce an honest and accurate set of accounts.  I didn't want to appear to be rude - do other people on here find that some clients think the accountant's role is to manipulate accounts to their financial advantage? How do you deal with that? 

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Universe
By SteveOH
31st Oct 2020 10:43

Of course your potential client is asking you to do something dodgy and you've given her the appropriate answer.

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Replying to SteveOH:
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By I'msorryIhaven'taclue
31st Oct 2020 11:07

Agreed, OP you should google mortgage fraud which, as you will see, is classed as a criminal act.

You must decide for yourself where the line is. Regardless of how compliant you might be at accounts production stage, when eventually the lender asks for an accountant's reference you'll be faced with the dilemma of how candid/truthful to be regarding your client's immediate trading prospects (which, let's face it, are at best uncertain for most). A solid disclaimer on any reference can help minimise your exposure, although any failure to disclose where say you know the client is likely to go under could nevertheless land you in the soup.

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Replying to I'msorryIhaven'taclue:
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By michjimblack
31st Oct 2020 15:19

Thank you for your advice, I didn’t want to seem to be too pedantic to the client but at the same time I’m not going to do anything that is unethical!

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By Crouchy
31st Oct 2020 10:49

does the client want to:

A. show low profits and pay as little tax as possible
B. have higher profits and be in a position to get a mortgage (but suffer higher tax)

I don't think its possible to do both, it the classic catch22 situation

start by producing the accounts as you would do normally, and see how sits. what can you legitimatley do to increase profits - can you flip between accruals and cash basis for example

is what the client is asking for viable for business, if for example its a small business with a turnover of £30k, can you really add an extra £10k to the profits without it looking like a massive fudge? probably not

there is a fine line between helping clients and going beyond your remit, you've got to be true to your own values and ethics

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By frankfx
31st Oct 2020 12:23
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By Calculatorboy
31st Oct 2020 13:36

You have to ask yourself whether you really want a client like that

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By Anonymous.
31st Oct 2020 13:45

michjimblack wrote:

do other people on here find that some clients think the accountant's role is to manipulate accounts to their financial advantage?

I'm sure they do.

michjimblack wrote:

How do you deal with that? 

If it was me, I'd consider my position.

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ALISK
By atleastisoundknowledgable...
31st Oct 2020 14:14

I’msorry... has given you the best most practical advise you could get.

In one form or another, you’ll be asked this many times over the coming years and you need to decide for yourself where you are willing to draw the line. FWIT, I think you gave the client a great answer - I tend to tell them the rules re what they can claim and leave it for them to give me the numbers. If they tell me (in writing) that cost X is within the guidelines that I’ve given them, then I’m happy to include it.

I’msorry... talks about the Accountants’ Certificate/Reference. Any question that is either subjective or about the future, we just say ‘it’s our standard policy not to answer subjective questions’. No one has ever had a problem with that.

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Replying to atleastisoundknowledgable...:
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By I'msorryIhaven'taclue
31st Oct 2020 14:49

Hi ALISK, that's quite a good line for when we're asked to gaze into our crystal ball. I shall nab that for my arsenal.

This is the type of covering of the derriere that I had in mind for the OP. Example disclaimer is in bold:

We write regarding our above client, who has asked us to provide a reference in
connection with a proposed mortgage loan for the purchase of residential property.

Our client’s business was established some 9 months ago, and as a new business has yet to produce accounts. We have no reason to suppose that our client would undertake any commitment which she did not expect to fulfil; however we can make no assessment of our client’s continuing income or future outgoings.

We trust this is sufficient for your purposes.

This reference is provided in good faith and the above statements are made to the best of our knowledge and belief. However we accept no liability to you or any other party who may seek to rely on this reference.

A disclaimer will rarely give you absolute protection against your duty of care to the lenders relying upon your reference (OP, if you are not familiar with the principles then google Hedley Byrne v Heller for some basic background regarding duty of care). But it can offer you some protection if you are able to lob the ball back into the lender's court by pretty much telling them to decide for themselves (whether to lend funds) and not base their decision on anything you say or don't say.

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Replying to atleastisoundknowledgable...:
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By michjimblack
31st Oct 2020 15:12

Thank you - it’s reassuring that you think I said the right thing! And thank you for the advice too

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By the_drookit_dug
31st Oct 2020 15:47

I think part of the accountant's role is to keep clients on the straight and narrow, to an extent. Use your judgement - if they're constantly looking to cheat and manipulate for personal gain, you'll soon tire of them, plus they'll be by their very nature higher risk. However if it's just the occasional questionable request, then put them straight as you have done.

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By SXGuy
31st Oct 2020 17:22

Clients want to pay as little tax as possible. Then when they want a mortgage they are shocked to find that little tax means less chance of obtaining one. They don't understand that you can't have both.

Tell your client you will produce accounts that reflect the truth, if it raises a high tax bill, tough. At least they will most likely be approved for the mortgage.

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By Paul Crowley
31st Oct 2020 19:25

Client likely to have problems borrowing as a new trader
Stand clear and get client to deal with an expert loans arranger so that disapointment comes from loans guy, not you

BUT you may find loan arranger thinks he can do the tax stuff
Lost a client for 9 months in similar circumstances, but client returned before anything submitted to HMRC

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By sash100
31st Oct 2020 20:19

One important aspect I have learnt with new clients is client behaviour and attitude. I ask myself is that a type of client I want to do business with and are they transparent.. You have to think do I want to work for such clients that maybe economical with the truth at times. Trust is important in any relationship. Can you trust them ?

Any hint of dishonesty I would know they will probably be trouble in the short and long term and better to make your excuses and exit.

I think this client is looking for a dodgy accountant who can manipulate the tax payable (which there are many that would) and wouldn't be surprised in future if they conceal some information from you to suit their requirements or maybe find someone else that can do what they say.

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By Tax Dragon
01st Nov 2020 09:51

I'm surprised at how many "you have to decide for yourself where the lines are" type comments there are in this thread. Of course professional judgment is a huge part of an accountant's job. Personal ethics may inform your personal judgment (whether consciously or not). But it would be a lonely place I think if personal ethics was all you had to rely on. Also, given the pressures of the world, it'd take a superhuman to hold true to self-imposed lines without support. Fortunately, support there is.

Some lines are drawn by statute. I'msorry mentioned criminal law; most of the day-to-day support comes from civil law, of course.

Where the law isn't explicit, there tend to be codes of ethics and similar support and guidance from professional bodies.

In short, sure, stay true to yourself, but remember: you are not alone.

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By Guilford Accounting
03rd Nov 2020 09:50

Resign. There are plenty more clients of the type you do want out there.

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By Cylhia66
03rd Nov 2020 11:04

Of course I agree with most of the comments here. A lot of clients are dodgy and expect uncacceptable things from their accountants. You clearly need to draw a line if you want to have a long career as an accountant.

However I think there is one thing you could have suggested to your client that they might have found satisfying and this would not be deemed illegal or unethical.

Tell them to claim less business expenses. This increases both their income and their tax liability pretty much to the level they are comfortable with.

I believe HMRC would not complain about a client who voluntarily chose to not claim some of his expenses. I might be wrong. I'd be curious to know what others think.

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Replying to Cylhia66:
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By John R
03rd Nov 2020 12:25

If you knowingly prepare accounts that have omitted certain business expenses, and you know that the figures are to be used for mortgage purposes, in my view you are complicit in defrauding the lender.

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Replying to John R:
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By frankfx
03rd Nov 2020 16:04

John R wrote:

If you knowingly prepare accounts that have omitted certain business expenses, and you know that the figures are to be used for mortgage purposes, in my view you are complicit in defrauding the lender.

Misrepresentation.

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