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Potential new client - I'm scared!

A potential client has contacted me. The accounts are wrong.

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A potential client has contacted me.

I looked up the dormant company accounts on Companies House. Net Current Assets look OK. He has an amount for Provisions for Liabilities. He then has Net Assets.

I ask what the provisions for liabilities are made up of. He says it's the Net Current Assets less Net Assets! I ask him what kind of expenses have been included in there. He says it's just a computation!

I try another tack. "What are the Net Assets made up of? He said "Net Current Assets" less "Provisions for Liabilities"!

I said that I dont have any confidence in the accounts. He said: "Companies House accepted them!" I say they accept accounts whether they are right or wrong.

I looked at the Net Assets of £1,128 and then I looked at the Total Equity of £1,215. He couldn't even get the Balance Sheet to balance!

He says he's completed the submissions himself but an "accountant" prepared the "accounting computation" (whatever that is!).

When I looked through the accounts submitted to Companies House I see that another company's bank transactions have beene added on to the accounts!

He was only wanting me to close down the company and do his self assessment tax return going forward (he's also supposed to be a sole trader) but I think he's too big a risk and I dont like having anything to do with a company that there is a large chance that the tax has been calculated wrongly.

Replies (19)

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By frankfx
22nd Jun 2020 21:09

Oh please accept the assignment.

Let us have a Charles Dickens style weekly instalment.

Should take you and your followers through to midnight 31 January 2021.

Sleep on your decision.

Thank you

Thanks (4)
Replying to frankfx:
By petersaxton
22nd Jun 2020 21:16

You know what my answer's going to be dont you!

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By mrme89
22nd Jun 2020 21:32

You didn’t have me down as the type that didn’t like a challenge, Peter.
Good to see back on the forum.

My take is that the client probably won’t value any work you do for them anyway, so better left alone.

Thanks (1)
Replying to mrme89:
Psycho
By Wilson Philips
22nd Jun 2020 21:43

Ditto. Although I’d like to see the outcome it would be on the back of someone else’s efforts and I wouldn’t touch this one with the proverbial.

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By Paul Crowley
22nd Jun 2020 21:52

If you do take it on get money up front

Why does potential client not just abandon and leave Registrar to to his thing

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By SteveHa
23rd Jun 2020 09:02

So apart from the balance sheet (which shouldn't affect the tax comp), are the "other company" transactions income, expenses, or both, and do they make a material difference. Is it possible that tax has been overpaid rather than underpaid?

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Replying to SteveHa:
By petersaxton
23rd Jun 2020 09:26

If the balance sheet doesnt balance I would suggest that the profit & loss account could be wrong. I said the tax could be wrong so that would include overpaid or underpaid. The balance sheet difference may be small but it doesnt mean that there's only small errors made.

I would suggest that whoever was preparing the accounts doesnt know what they are doing in an accounting sense. Rather than following double entry bookkeeping principles they sound like one of those people who says: "Let's try to work out what the sales are." They'll look at each item in isolation and then when they find that they can't balance the balance sheet they will think: "I got most of it right and it's not out by a lot. I'll leave the balance sheet as it is.".

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By bernard michael
23rd Jun 2020 09:13

Which pub has the client been to ??

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By petersaxton
23rd Jun 2020 10:57

Some people might say I'm being awkward but I've decided to email Companies House with what I've found. If people want to form a company they should make sure they do things properly.

"I have been looking at the company accounts of the above company and I have noticed that the accounts submitted cannot be accurate.

For the accounts for 2013-2014 Note 2 says that Tangible assets nbv at 31/01/14 is £1,000 but for the accounts for 2014-2015 Note 2 says that the Tangible assets nbv at 31/01/14 is £10,000.

Also the accounts for 2014-2015 have comparative figures for 2013-2014 that bear no relation to the figures in the accounts for 2013-2014.

In the accounts for 2017-2018 the balance sheet doesn’t balance.

In the accounts for 2018-2019 the balance sheet doesn’t balance.

In the accounts for 2018-2019 there are several pages of documents with transactions relating to a different company."

Thanks (2)
Replying to petersaxton:
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By Southwestbeancounter
23rd Jun 2020 15:05

Ha ha!
That's hilarious and totally brightened up my afternoon, thanks!
I especially love the last bit "In the accounts for 2018-2019 there are several pages of documents with transactions relating to a different company." LOL!!
Please keep us posted as to the reply (if any!) you get from Companies House

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Replying to Southwestbeancounter:
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By Paul Crowley
26th Jun 2020 13:58

Interested as well
But would not expect a reply from Co house
They really do not care about anything other than errors on BS non audit statements

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Replying to Paul Crowley:
By petersaxton
26th Jun 2020 11:03

Whenever I have pointed out errors in accounts Companies House have always requested corrected accounts.

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By Mr_awol
23rd Jun 2020 10:59

petersaxton wrote:

I looked up the dormant company accounts on Companies House. Net Current Assets look OK. He has an amount for Provisions for Liabilities. He then has Net Assets.

(snip)

I looked at the Net Assets of £1,128 and then I looked at the Total Equity of £1,215. He couldn't even get the Balance Sheet to balance!

(snip)

He was only wanting me to close down the company and do his self assessment tax return going forward (he's also supposed to be a sole trader) but I think he's too big a risk and I dont like having anything to do with a company that there is a large chance that the tax has been calculated wrongly.

To simplify this, he has prepared 'dormant' accounts, but the company must have previously traded as has net assets. The net assets amount to nine tenths of nothing (c£1k) and he just wants to shut the company down and engage you for ongoing tax compliance.

I think you are quite right in your assumption that the company accounts previously have been wrong, but I wouldn't be too concerned with that as such (except of course that it may indicate a loose approach to compliance generally). As long as no creditors are likely to go unpaid, I'd advise him of the correct approach for winding the company up (might not actually get involved - if he's such a fan of DIY let him crack on with it) and focus on whether I wanted the sole trader client, or not.

Thanks (1)
Replying to Mr_awol:
By petersaxton
26th Jun 2020 10:52

You have faith in the accounts!?
There's a provision of £11k that he can't explain.

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By Rgab1947
26th Jun 2020 10:47

Good Friday story.

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Replying to Rgab1947:
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By Paul Crowley
26th Jun 2020 10:55

But probably no resurrection

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By Ammie
26th Jun 2020 11:21

Brilliant!!

With your permission Peter I would love to quote this to the client that says
"done it myself" or the one that says
"I have always done my own, I just put what I thought was about right, it's near enough, that will be OK"

To each of which I would normally say, what's changed now, why are you talking to me?

Need to see this scenario to believe it, you couldn't make this sort of thing up! (Pardon the pun.)

I agree with others. don't waste your time entertaining it. These type of clients invariably can't afford the fee or don't want to pay the fee or are generally freegans. You will probably regret every minute you spend on it.

Thanks (1)
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By indomitable
26th Jun 2020 13:49

Sounds too risky to me. The only way you should ever take on this client is to re-open prior years, if necessary correct and re-file, then close the business.

Point out Directors legal responsibility in having the company struck off. Additionally HMRC can still re-open an enquiry even if the company has been struck off..

But why bother, doesn't sound like he's willing

Thanks (1)
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By rocket_queen
26th Jun 2020 18:22

I had a client with similar accounts. The difference was, they had paid an "accountant" to do it for years, not realising that it clearly was someone who knew nothing about accounts. They came to us because one year the "accountant" suddenly retired with no warning to clients and they only found out when enquiring about their accounts and getting an email saying he had retired and they would have to find someone else. This was helpfully just before a filing deadline when the accountant had already had their records for months.

Anyway, the client was keen to get things right as had never realised they were wrong. I was tasked with correcting several years' of accounts using what records we could piece together and little bit of guess work. The client was absolutely delighted that we saved the day. They obviously missed the normal filing deadline (I'm not a miracle worker!) but eventually got everything filed and a great system set up. They became a fantastic client who really valued my work.

My point is, I wouldn't write a client off over just the accounts being wrong as that is something that can be corrected. I would consider the clients' attitude. If they are keen to have it corrected and get things sorted out then go for it, but agree a fee and timescales in advance for getting the work done and make sure you have time for a thorough excavation job. If the client (as it seems in your case) isn't remotely interested in getting things sorted then I would walk away, fast!!

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