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Prior year SA100 wrong but no additional tax to pay if corrected - bother to re-do?

Prior year SA100 wrong but no additional tax to...

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A new client came to me today and said she was concerned her 11-12 tax return was wrong, as she thought she had a profit but her SA302 recently requested for mortgage purposes shows nil income. 

Her 'accounts' consist of her own spreadsheet of expenses, nothing prepared by the 'accountant'. 

The SA100 shows a loss of £83 with no tax paid.  Having had a quick look at the return and her 'accounts' I can see the that the CAs were wrong and another expense was wrong (not reduced for personal use), but total errors would result in a profit of around £5-6,000 so below the PA.  So, by correcting there would still be no tax to pay.

Am I right in thinking, that

a) As there would be no tax to pay, HMRC could not issue a penalty if we do not correct it as penalties are tax-geared and 100% of £0 extra tax to pay is £nil.

b) If she does not want to correct it, I would have no reason to do an AML report as she has made no criminal gain?

Whilst I agree the best thing to do would be to correct it and have it all 'tidy', it does seem a rather academic exercise and she does not really have the funds to want to pay me to re-do last year.  Can I just start afresh with 12-13 and make sure it is 100% spot on?

Am I having a senior moment? Am I missing something here that would make us have to correct it?

Thanks

Replies (11)

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By K81
13th Nov 2013 13:23

Surely as you are now aware that it is incorrect you need to point out to your client that it should be amended? You are within the time frame for amending 2011/12 so there will be no penalties & if, as you say, the income is below personal allowances, there will be no tax liability.  

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By tonyh
13th Nov 2013 13:24

problem I see

Capital Allowances does she need them ?

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Giraffe
By Luke
13th Nov 2013 13:49

K81 and Tony

Thanks for your responses.

Tony - She doesn't need the capital allowances.  It was an asset claimed in full as AIA a couple of years ago, last year's 'accountant' had included the 33% depreciation charge as another capital allowance in the year. So it is just an incorrect entry altogether that needs removing.

K81 - I have pointed out to the client that it should be amended.  Whilst the tax and penalties are zero, she doesn't have the funds to pay me to re-do the year.  This is the problem.

The accountant who did the 11/12 tax return has only done this one, previous years were done by a different accountant and there is no reason to suspect they are wrong. 

I know in an ideal world one would correct the 11/12 return, and one 'should' do so, but the end result is zero apart from the client having to pay me.  As far as I can see she would not be liable to any extra tax and therefore no penalties, should it be investigated.  And consequently, there is no underpayment of tax so no ML report to be done.

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By Kirkers
13th Nov 2013 14:06

Will she be needing a mortgage in the next 2-3 years? Obviously a profit of £5k looks better than £0.

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Giraffe
By Luke
13th Nov 2013 14:25

Mortgage sorted

No, the mortgage issue is now sorted and a mortgage found that just relies on her husband's income.  That has recently been completed.

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By davegibson00
13th Nov 2013 17:42

I'd question that

What is the benefit to a) the client and b) the treasury to do this rework?  If the answers are a) none and b) none then refer to CIOT guidance:

 

"members should exercise judgement over whether the cost of remedying the error might exceed the tax involved. In the opinion of the professional bodies it is reasonable for a member to take no steps to advise HMRC of isolated errors where the tax effect is no more than minimal, say up to £200, as these will probably cost HMRC and the client more to process than they are worth to the Exchequer."

 

I think particularly in light of the fact the client can't/won't/doesn't want to pay you anyway, give the client the choice.

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Giraffe
By Luke
13th Nov 2013 18:47

Thanks Dave

That s my thought exactly.  Re-doing the accounts and tax return will not actually change the end result at all, merely increase the accountancy costs for resulting in the same nil tax payable.

Now, to be fair I have only had a quick look through the numbers provided and not audited them but there does only seem on initial glance to be one error, so my suspicion is that it is limited to that. 

Obviously I have to now write to the previous adviser, and will ask for a copy of the previous tax return and accounts.  If anything further comes to light then of course we will reconsider.

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The triggle is a distant cousin of the squonk (pictured)
By Triggle
13th Nov 2013 19:12

Probably not an issue but just check that your client and her husband are not claiming Working Tax Credit or Child Tax Credit as these may be affected if the tax return is refiled with a greater profit on them.

Other income based benefits may similarly be affected also.

Belt and braces and all that.

 

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Giraffe
By Luke
13th Nov 2013 19:25

Thanks Triggle

I will check.  I would doubt they are but definitely worth checking, thanks for the prompt.

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By vince8
14th Nov 2013 10:14

Loss?

What will you do about the loss for 2011/12?

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Giraffe
By Luke
14th Nov 2013 14:44

Loss for 11/12
Currently stands at £83. She had no other income so in theory it could be carried forward.

Unless further info comes to light to mean having to do a revised 11/12, I don't plan on doing anything with the current loss. I will not be setting against 12-13 profits as it is not a 'real' loss so to take advantage would be wrong.

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