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Refusal of Clearance - ICAEW Accountant

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My new clients previous accountant is refusing to hand over any financial information due to non payment of fees.

My question is can an ICAEW Accountant refuse clearance on this basis?  Surely causing detriment to the client is unprofessional - ie the client (and/or his agent) cannot move on and file accounting documentation with HMRC.  Surely the correct action to take would be to chase the client for non-payment through legal means.

The debate here is not the reason for non payment but the reason the accountant has declined to hand over information to the detriment of the client.

 

Replies (26)

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By Wanderer
21st Oct 2021 11:54

You need to get your thought process correct. There is no 'clearance' involved.

What information are you asking them for & why doesn't the client already have this?

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By SteveHa
21st Oct 2021 11:57

Clearance and handover are two separate things. ICAEW cannot refuse clearance (basically a line in a letter that says "go ahead") but they can withhold other information.

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By Paul Crowley
21st Oct 2021 12:07

Agree both
Once client has all he wants he will never pay

Accountant on the other hand must give client reasonable time to pay and give notice etc
Courts really do not expect the claimant to rush straight to court

ICAEW not interested in payment and fee disputes, so a complete waste of time complaining in that direction

What is the current desperate urgency?
Tax returns have a 10 month deadline
Companies have 9 months for companies house

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By ireallyshouldknowthisbut
21st Oct 2021 12:10

If the client has not paid for the work, then no you wont get it.

All you are going to get is obstruction and minimal data.

So the client has a choice - pay you to do it again, or pay the old accountants who might of course still press for payment so they could pay twice.

Of course if they don't pay the old accountants, one wonders if the new client will pay you.

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RLI
By lionofludesch
21st Oct 2021 12:10

You don't get permission to act from your predecessor. He merely provides you with information which you may consider when deciding whether to accept the appointment.

It's been that way for nearly 50 years, yet you still hear folk talking about "clearance".{sigh}

As regards the information, I wouldn't hold back information which would prevent the client from fulfilling his legal obligations. I would consider that a step too far. If the fella doesn't pay, my remedy would be the courts, not storing his books and records.

As the incoming accountant, I'd be asking the client why he hasn't paid. Is his reason reasonable ? I'd be wondering if he was a serial defaulter. That's your greater problem, imho.

And the obvious solution is that the client pays his debts, of course........

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Replying to lionofludesch:
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By thevaliant
21st Oct 2021 15:00

I do wish my firm would do that sometimes (ie, court, rather than withholding information).

We've just lost a client - owes us £8k. 'Request for Clearance' came in from new firm. We gave 'no professional reason why' but then partner insisted we refuse any handover information citing fees outstanding. He rubbed his hands in glee, expecting the £8k would come in.

More fool us... I had them on my watch list. They filed correct accounts on time with CH and HMRC. Unlike other clients, they'd kept the records so new accountants request was a curtesy only. They got everything they needed from the client anyway.

Haven't told the partner yet. We won't be seeing the £8k.

(Partner was an idiot - the outstanding fee relates to work done in 2016 which client didn't pay; but client did pay for later work so partner just thought we'd get it anyway in time - now he can't use withholding information as a stick to beat client with, and because its a 2016 debt, the Limitation Act 1980 is just around the corner so even court isn't an option).

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Stepurhan
By stepurhan
21st Oct 2021 13:10

You say to the detriment of the client. What do you mean by that?

It is the client's responsibility to file accounts and tax returns. The accountant is engaged to assist them in that responsibility. If the client hasn't paid for that assistance, then the accountant is not obliged to provide anything produced that hasn't been paid for.

The only possible detriment is withholding client records, leaving the client unable to prepare accounts and returns themselves. There is a limited ability for accountants to hold a lien over records, but the restrictions usually don't make that worthwhile. Is that the case here?

More to the point, you should not be getting involved in a disagreement between your client and their ex-accoutant. It is up to them to resolve the matter and, if they find that unsatisfactory, complain to ICAEW about it. You should not do anything more than telling the client what information you need passed over.

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By SXGuy
21st Oct 2021 13:29

Last time I looked my engagement letter clearly states that I can hold a lien over my clients.

And bloody right too

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Replying to SXGuy:
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By taxwizard
21st Oct 2021 14:57

I had this recent issue with the ACCA over the non payment and basically they said all the records belong to the client and had to hand them over irrespective of non-payment Perhaps ICAEW stance is different

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Replying to taxwizard:
By SteveHa
21st Oct 2021 14:59

There's a difference between your workings and client papers. Your workings are yours, and unless the client has paid for them, don't belong to him/her.

Client documents, on the other hand, do not belong to you, and should be released (I believe that GDPR kicks in, here).

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Replying to SteveHa:
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By taxwizard
21st Oct 2021 17:20

We carried out the book-keeping for the client (as well as preparing the accounts) so basically according to ACCA so all the schedules including the Fixed Asset Register and Director Loan schedule belonged to the client.

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Replying to taxwizard:
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By SXGuy
21st Oct 2021 14:59

Well id be more than happy to provide the ex client with his own work, what I wouldn't be doing is providing or submitting any work I'd done without payment.

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Replying to SXGuy:
RLI
By lionofludesch
21st Oct 2021 15:22

SXGuy wrote:

Well id be more than happy to provide the ex client with his own work, what I wouldn't be doing is providing or submitting any work I'd done without payment.

Mmmm - well, my understanding (and I've not often been placed in such a position) is that it depends on whether you act as agent for the client or on your own account.

A subtle difference but expensive if you lose the case in court.

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By I'msorryIhaven'taclue
21st Oct 2021 14:38

Angela S wrote:

My new clients previous accountant is refusing to hand over any financial information due to non payment of fees.

So you're not asking for draft accounts that haven't been paid for, but for breakdowns of the most recent returned accounts?

Angela S wrote:

My question is can an ICAEW Accountant refuse clearance on this basis?

They're refusing to undertake any further work preparing handover information pro bono, as others have pointed out

Angela S wrote:
Surely causing detriment to the client is unprofessional - ie the client (and/or his agent) cannot move on and file accounting documentation with HMRC.  Surely the correct action to take would be to chase the client for non-payment through legal means.

Seriously? You think it unprofessional of a car dealership to hang on to your car until you stump up? Your dry cleaner? Your dentist who tells you to **** off if you still owe him for your last visit?

To not pay one's bills is dishonorable. Please, please re-evaluate your role in condoning such actions.

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By Angela S
21st Oct 2021 14:49

Good Afternoon all.....

I understand why the previous accountant is withholding information due to non payment. No-one wants to work for nothing and everyone wants to be paid - my question is simply can they withhold information in relation to the accounts/financial statements?
I am not involving myself in the disagreement I am merely wanting the information so that I can start setting the client up on Agent Gateways and Accounting Software etc.
So for example.... refusal to send last submitted VAT return figures means that the return will be late (not filed) as we cannot get them authorised for submission and a penalty will then be applied by HMRC and so forth.

I also understand the concerns re payment to myself however I have asked the client to pay up front then on Standing Order so that arrears are impossible.

I am not seeking approval from the previous accountant to take over this client - that is simply the clients right to appoint us.

Thank you for all your thoughts.

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Replying to Angela S:
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By Matrix
22nd Oct 2021 06:29

Why haven’t they paid for the VAT return if it has been submitted?

Why don’t they have a copy to give you?

I would steer clear.

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Replying to Angela S:
Stepurhan
By stepurhan
22nd Oct 2021 08:50

Angela S wrote:
I am not involving myself in the disagreement I am merely wanting the information so that I can start setting the client up on Agent Gateways and Accounting Software etc.

By even raising this question, you are literally involving yourself in the disagreement.

If the lack of a copy VAT return is preventing you filing the next VAT return, that is the client's problem, not yours. That said, surely the client will have received a copy of the return for approval. An accountant that simply submitted whatever they wanted to HMRC without client approval would be a genuine cause for complaint. Still the client that would be doing the complaining though.

Even from the second-hand information you are providing, this client is raising red flags for me. Standing Orders can be cancelled. Tread carefully.

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Replying to Angela S:
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By Paul Crowley
22nd Oct 2021 09:54

I would not be taking the client on
Clearly client can afford to pay but chooses not to
That kind of client is likely to treat HMRC with the same disdain

If he has a case then he can go to court for compensation, or try the PII insurer
You look to be assisting that client in failing to pay by looking to see if qualified accountants can withhold "clearance"

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Replying to Angela S:
RLI
By lionofludesch
22nd Oct 2021 13:17

Angela S wrote:

So for example.... refusal to send last submitted VAT return figures means that the return will be late (not filed) as we cannot get them authorised for submission and a penalty will then be applied by HMRC and so forth.

Why not ?

Surely the client knows the last VAT bill he paid from the bank records.

Or is he not paying them too ?

But here's where it gets murky. Access codes are not, imho, part of the working papers of the previous accountant.

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By Michael Beaver
21st Oct 2021 15:04

I'm an ICAEW accountant, and my engagement letter states that until paid for, all working papers produced by me remain my property.

I can't hold on to documents which are already legally owned by the client.

Most information can already be sourced and handed over by the client (i.e. company authentication code, UTR's, copies of accounts, etc). The sticking point tends to be such things as fixed asset register, balance sheet item support, my own workings on cost base of investments, etc.

I've only had to withhold documents on a couple of occasions. In one it resulted in my invoice being paid promptly. In the other, the new accountant decided not to proceed with a client with a history of non-payment.

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By Calculatorboy
22nd Oct 2021 00:13

We never provide clearance. Where do people get this idea from?

Sounds like accountant has just exercised his right of lien ..what's wrong with that? So ex client pays up and will then get the goods

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By Ian Bee
22nd Oct 2021 12:33

I had to look at this some years ago in a large firm and we concluded that we could exercise a lien over certain papers but not those that belonged to the client (eg were part of their books and records) or that could prevent the client fulfilling legal obligations.

In practice the client invariably has the handover information in the first place or could reconstruct information from what they already have, it's just easier to get it from the outgoing accountants.

On the other hand I wonder if any thought goes into drafting letters requesting information. I see letters coming in with a long list of required information which has evidently been taken from an internal manual by a junior employee. I reply that the client already has this rather than waste time finding it and sending on. For example why does the client not have a copy of the last set of accounts which they have signed anyway? If you really want to check you can compare the full set to what is filed with Companies House.

Similarly I often get asked for the latest corporation tax returns agreed by HMRC. This is over 20 years out of date. Under self assessment, there is no agreement though HMRC can raise an enquiry within a certain time scale. So why do the new accountants ask for it?

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Replying to Ian Bee:
By Husbandofstinky
26th Oct 2021 10:28

It all depends on which end you are sitting on with your approach. Assuming this is a straight forward hand over and no complications, it is much simpler for the agent just to pass over the necessary information as they know what is required. In short professional courtesy. It is not exactly an onerous task and does not take up too much time.

A pragmatic approach would save a lot of time for all concerned.

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By JD
25th Oct 2021 19:51

Lien is pretty limited if it is a company client due to Companies Act requirements, but do you want a client that does not pay

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By North East Accountant
26th Oct 2021 12:40

I'd be more worried about why he hasn't paid his previous accountant.....cos he'll quite happily do the same to you.

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By paulinleeds
27th Oct 2021 00:16

Talking about letters received from new accountants being out of date; I still receive letters asking for a copy of the last P35 and P14s.

I simply reply that I have never prepared any of those forms for the client and have no ideas when the last P35 and P14s were prepared.

If I’m feeling annoyed, I may even say that the forms haven’t been used for many year and ‘are they seriously asking for them and why do they want a form that was submitted many years ago’

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