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Providing new accountant with handover information

In dispute with ex-client and new accountant wants handover information

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I'm in dispute with a client who should have registered for VAT but I didnt register until I received the year end accounts data.

I'd been chasing him for up to date sales since 2016 but he was saying that he was well under the registration limit and he also said that his supplies were not VATable. I have emails to him asking for the information but he never provided any information until he provided the data for the yearly accounts. I'd been asking him to total his sales for the previous 12 months every month to see if he goes over the limit. He didnt inform me of going over the limit. When I got the accounts data I worked out that he'd gone over the limit and it wasn't temporary. He is a personal trainer and I had told him that my view is that his sales would be subject to VAT but he always said it wasn't because of medical/educational reasons. I told him I didnt recognise those reasons as being relevant but asked him to talk to HMRC and explain exactly what he did so they can make a decision. When I informed him he had gone of the limit he said he shouldn't be subject to VAT because of the reasons stated. I asked him what evidence he had. He said he'd looked for evidence but couldn't find any. He said when he looked into it a year previously he was 100% certain he wasn't VATable. He asked me to calculate how much VAT was due and it came to about £25k. I informed HMRC and also registered for VAT. He asked what was needed. I said he could either increase his prices or accept that his prices included VAT. I got him setup on on Xero and explained what he needed to do. He continued to include VAT in his prices and didnt change them. I also prepared his latest yearly accounts. I sent him an invoice for the work done. At this stage he had not made any complaint. Last week he sent me an email and said it was my fault he had to pay VAT! He also said he didnt want to pay for the extra work required. He said he also wanted me to pay the VAT that was due!

My argument is that I was regularly chasing him for up to date sales and also asking him to keep checking to see if he'd gone over the limit. I'd asked him to contact HMRC to check his VAT situation but I feel he will have just looked online and jumped on the medical/educational excuse. I also think that even if I hadn't chased him he wouldn't have incurred any extra expense (HMRC want a first VAT return ending September 2020 so there may not even be a penalty) because he had not increased his prices either after I told him about needing to be VAT registered or before. He also never complained about me being responsible for late registration until after I'd done a lot of work for him and sent him an invoice.

My opinion is that he doesn't want to pay the VAT and is trying to get me to pay.

He said he's got a "legal team" working on the case and they say it's a clear cut win for him! I don't think he's told them the facts.

If it does go to court I was thinking of asking another client to be a witness who could testify that I am very eager to chase them to find out whether they need to register for VAT.

I'd had a professional letter from his new accountant asking for handover details. Am I within my rights to withold the details until any case is settled?

 

Replies (12)

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By bernard michael
14th Sep 2020 13:43

With the evidence you presented to us you will have no problems in court
Your professional body will tell you whether you can with-hold information but I doubt it

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By Duggimon
14th Sep 2020 14:05

He doesn't have a "legal team" - he's loathe to pay one accountant, he's not going to have a team of lawyers.

I would withhold whatever work you've done subject to a resolution being reached, though of course hand over immediately any of his own records you might currently retain.

I'm not sure about the request for professional clearance, while the situation is definitely an issue that might prevent a firm accepting an appointment, it sounds, based on your post, like clear tax evasion, and disclosing it in your letter to the accountant may be an offence under the tipping off rules. I would suggest seeking advice from your professional body.

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By ireallyshouldknowthisbut
14th Sep 2020 14:22

Hi Peter,

He sounds like a scream.

It seems you did everything you should have, and I doubt much will come of this other than bleating and complaining.

I think you have to do the clearance, but personally I'd have a nice chat to the new accountant, explain you have bills o/s and that the second the client find the time to pay your bill, you will find time to send 'em the data. Usually works. I'd guarantee they don't know about your bill....you don't have to send what has not been paid for in any case.

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Replying to ireallyshouldknowthisbut:
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By bernard michael
14th Sep 2020 14:49

ireallyshouldknowthisbut wrote:

Hi Peter,

He sounds like a scream.

It seems you did everything you should have, and I doubt much will come of this other than bleating and complaining.

I think you have to do the clearance, but personally I'd have a nice chat to the new accountant, explain you have bills o/s and that the second the client find the time to pay your bill, you will find time to send 'em the data. Usually works. I'd guarantee they don't know about your bill....you don't have to send what has not been paid for in any case.


I recently had this with a Chartered Accountant firm who told the client they would pass the information on receipt of their outstanding fees. Client paid ,I got the information and the ICAEW firm are being bad mouthed ( not by me)
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Replying to bernard michael:
By ireallyshouldknowthisbut
14th Sep 2020 15:16

@Bernard, i'd imagine they would be bad mouthing the old firm in any case.

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By SouthCoastAcc
14th Sep 2020 14:44

I thought it was fairly standard to have a clause in the LoE that states the client is responsible for monitoring sales for VAT threshold.

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By Paul Crowley
14th Sep 2020 15:45

Depends who the new accountants are.
The new bookkeeper accountant on my nightmare client submitted dormant accounts despite me giving her evidence of both trading and a possible refund on tax.

You may well find the new accountant is in fact stirring the pot.

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David Winch
By David Winch
14th Sep 2020 16:11

A couple of points:
1. The (ex) client's VAT liability to HMRC is the same whatever advice you gave or didn't give. So there is no sensible legal basis on which he could require you to pay that VAT. (There MIGHT be a basis on which you could, if you have been negligent, be liable for penalties he has incurred, if there are any, but not the VAT itself.)
2. IF you decide to make a Suspicious Activity Report and IF you decide to tell the new accountant that you have done so, then if both you & the new accountant are members of recognised professional bodies you may not be 'tipping off'. Have a look at s333C PoCA 2002.
3. Having said that, I would not myself recommend telling a new accountant that I had submitted a SAR - I would simply set out the problem regarding failure to register for VAT on time & the difficulties I had had with the client.
David

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Replying to davidwinch:
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By I'msorryIhaven'taclue
15th Sep 2020 16:59

Good spot, David. Tort of negligence for any act or (as in this case, potentially) omission would compensate the client for any resultant losses suffered. And, as you have pointed out, the VAT liability itself is not a resultant loss.

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By SXGuy
14th Sep 2020 17:11

Had a very similar issue last year. Pretty much exactly the same except for the threat of lawyers.

They are clearly trying it on, you have the evidence on your side, let them try and do their worst, but I doubt they will do anything in reality.

With regards to handover, I guess it comes down to your professional body, but I'd be reluctant to hand anything over till I receive payment.

May even go a step further and instruct a solicitor myself with a letter before action. Might prompt a payment.

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By Paul D Utherone
14th Sep 2020 18:02

Can't add anything, other (once again) than a wish to refer them to the response in Pressdram v Arkell

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By petersaxton
15th Sep 2020 15:41

Thank you for all of your comments.
I'll keep you updated.

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