I prepared the client's 2018-2019 tax return from accounts prepared by the property managers for the year ended 05 April 2019. Client then changed property managers. The new property managers prepared accounts for the year ended 31 December 2019! I explained to the client in April 2020 that these accounts weren't for the correct period. She ignored me and every time I chased her she didn't respond. She then started chasing me for the tax return! She swore that I had sufficient information. Eventually she reluctantly agreed to my suggestion that I contact the property managers. The property managers refused to change the period of the accounts!
It would appear that the only option I have is to use the accounts for 2019 to complete the 2019-2020 tax return and explain the period used and why.
Does anybody have any comments?
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You will have to ask her for copies of all the income/expenditure/bank statements so you can work it out yourself. Advise her the additional fee. I expect she didn’t want to pay the property manager for accounts, maybe she will now.
OK well put the gross rent on the return with no relief for expenses.
Although I don’t understand why she doesn’t have bank statements to support the income and expenditure.
Do those accounts include only 9 months' income, given that the managers weren't managing for the first three months of the period? I'm confused.
They also provided accounts for 2018.
Why?!
My confusion has not lessened.
IIRC, statute says that tax is based on the profit for the fiscal year. If the agents don't provide their client with the information to comply with the law, you might decide to submit a provisional return and amend it once the figures are available, which I guess won't be too long now. (I'm not saying this is right in law; just that it might be the most pragmatic answer given where you are.)
What makes you think that?
I was guessing, not thinking. That's why I said "I guess" not "I think". Tbh, what does it matter if my guess is wrong? How does that change what you will do?
Oh, just that 2020 has ended and these guys... these cowboys, you call them... seem to love preparing accounts. So much so that they produced some for 2018, when they weren't acting.
Difficult to understand
Assumed letting of UK property by UK letting agents?
Self-assessment not company?
Do the agents not give monthly statements, statements every time they make a remittance to the landlord, creating a summary of these would solve the problem. In fact I would never rely on agent's figures totalled for 12 months anyway even if I had the correct period/year.
Well, not wishing to disparage the noble calling of property agents ,given I am company secretary and in house accountant for one, however frankly I would not trust any of them to compile an annual summary that was accurate. We do not give our landlords annual summaries, they get a statement showing the gross received, our fee deducted, any outlays detailed and the resultant net with each payment they receive from us.
You have another option. Tell the client what the problems and ramifications are and your suggested answer. If she fails to sort the situation resign
Interesting. No-one has endorsed or agreed with the suggestion in your opening post, but you will do it anyway. That's fine - your decision - I'm just wondering why you bothered asking.
OK, you can submit an incorrect tax return (leading to double taxation) instead of the provisional/estimated one (to be amended to correct figures when these were available*) as I suggested, if you see your approach as "better".
*My guess was that this would be soon; it doesn't change the meat of the suggestion if that guess is wrong.
I can explain that easily. I asked to see if anybody would come up with a better suggestion. I didn't see a better suggestion.
I certainly didn't think that your "guess" was something to take seriously.
You definitely can't use the December accounts on a recurring basis to complete the return. If you've nothing better, you can certainly use them as provisional figures but you'd need to time-apportion them later when you have the following year's December accounts.
Bit of a faff and I'm sure the client won't be pleased with the fee for doing the accounts twice plus the uncertainty of the tax bills (could be more. could be less) but that's not your fault. She may leave but she'd have to be a helluvan important client before I'd miss her.
bernard michael wrote:
You have another option. Tell the client what the problems and ramifications are and your suggested answer. If she fails to sort the situation resign
Understood. She's taken nine months to not respond to the issue so if I explain on the tax return what period has been used then HMRC can complain if they want to. Three months of rental income will be taxed twice.
But will she authorise the return ??
First its good to hear from one of Awebs foremost correspondents after quite a while , we hope you are well.
Recalcitrant estate agents are nothing new . its a bit difficult to pin down as we don't know how many properties are involved etc , can you get access to the underlying records , i don't suppose they use a ledger system. Don't ask them tell them. are they members of ARLA or similar?
Chin up
Have you told them they don’t need to prepare accounts, just to send you the ledger entries / monthly statements?
I'd give them both barrels. Tell them you are writing to ARMA RICS. Are they a new outfit who doesn't understand property taxation requirements.
Too much time and effort. I would ask the letting agent for monthly reports for April 19 to March 20. If you don't get them, tell the client you can't complete the Tax Return accurately and advise them to find another agent. Depending on the response from the client, either prepare a provisional Tax Return with an explanation of why (and finalise it when you do get the information) or resign.
Agree with this.
Tell them that until you receive the requested information it's not possible for you to do the tax return. Don't put your name to something that's knowingly based on incomplete information.
Personally I wouldn't bother chasing the agents, nor writing to ARMA, RICS etc.
Client has taken nine months to reply to your queries.
Client ignored multiple chasers from you.
Client states she hasn't got statements.
Client states she has no further information.
Client has told you what you need to prepare her tax returns!
Client didn't contact property managers but made you do her leg work.
Comes across as if the client can't be asked to make any effort.
Sounds like a PITA client and maybe property managers have reached the same conclusion?
I'd just tell the client that I won't prepare the return until she comes up with the necessary records and if she wants to find another accountantant then she should feel free to do so.
At one time, you could've submitted property accounts to 31 December (I never did - always used 5 April) but a 5 April year end has been mandatory for many years now (IIRC, since self assessment began in 1996/7).
There's no corresponding "overlap" provision for property accounts. If you can't get the client to provide the information you need, you seem to have no alternative but to disengage. Which might not be a bad thing, as she seems unsupportive of your position.
They said: "The accounting year end for this property is 31 December, therefore the 2020 accounts will not be issued before June 2021.".
Jeez - they're on the ball, aren't they ? Five months to account to the landlord ?
From the 2019/20 Property Toolkit .......
23. Has the 5 April basis period been applied?
Risk
For Income Tax purposes a rental business basis period is to 5 April each year. If the accounts are not drawn up to 5 April then the two sets of accounts drawn up to some other accounting date should be apportioned to establish the profit or loss for the year ended 5 April.
Mitigation
If accounts have not been drawn up to 5 April ensure profits or losses for the two years are apportioned on a daily basis to find the profit or loss for the relevant tax year.
Explanation
The charge for Income Tax is on the full amounts of the profits arising in the tax year. This means that a return has to be made to show the income of the year ended 5 April. The exceptions are:
• where the property income belongs to a partnership carrying on a trade or profession
• where the income is actually trading income (and not property income as defined for tax purposes) because the letting activity amounts to a trade.
I've still got the IR150 booklet which was sent to accountants when the changes were introduced. And to quote:
"3. The new Schedule A applies for the year 1995-96 tax year onwards. The basis period for 1995-96 is the tax year itself.....
"4. If you don't draw up your accounts to 5 April each year, you will have to apportion two years' accounts to find the profit or loss for the tax year."
So, the current rules have been around for a very long time now and any property agent who doesn't follow them would seen to be a complete prat. I've never come across one who prepared accounts but I have come across a few who prepared annual summaries and these have ALWAYS been drawn up on a tax year basis. As you would expect.
I dont have the accounts for 2020 to enable me to apportion for the 2019-2020 tax return.
I know. You said. Not available until next June, you said.
So you'll have to estimate and amend later. If you want to beat the deadline, that is.
What you can't do is use the December 2019 accounts and leave it at that.
you'll have to estimate and amend later.
FWIW, and in support of Lion (and others that have already made exactly this suggestion), I retract the parenthesised "I'm not saying this is right in law" from my post timed at 08:41 today.
(Technically, there's a difference between estimated and provisional... but as the provisional figures will be estimates, let's not be too pedantic. [Is it possible to be too pedantic?!])
Not sure if I'm missing something here - but I'm assuming that the client holds the property so that it generates an income - so I would assume that at some point the money makes its way from the agent into her bank account. That's your starting point for figures. I'd also imagine that the property agents pay the money over on a regular basis along with a statement showing what deductions have been made from the rent for the property. I'd also imagine that the client agrees the level of rent charged (whether annual or some other basis). (I'm basing my imagining on what a local agent does with regard to a property let out by a charity - so imagination based on facts in another case.) If your client isn't giving you this information maybe she doesn't understand what you are asking for - I would start with some questions along the lines of my imaginations above to understand what happens on a regular basis and then I'm pretty sure that there is some paperwork to uncover.
It would appear that the client manages her own property.
It sounds like you have a lazy client, Peter.
But that's good. The ball is now firmly in her court.
When I first read sounded like Service charge
Most work on Calendar years
Irrelevant to your client
She just need to know what she paid