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Should I explain it all to the client?

Client has just demonstrated an absolute zero understanding of tax.

Didn't find your answer?

Long standing clients run a pretty successful and reasonably profitable company.

They have just signed their 19/20 tax returns and are understandably concerned about the big drop in business and profits for 20/21.

The first email on this subject included "we won’t be using up the tax allowance within the business, let alone any surplus going into personal tax territory." and I explained that the business (limted company) does not have "a tax allowance", The reply was "What I meant by business tax allowance is that usually we pay ourselves payroll + dividends which equates to £XXk in total per year.  We only have to pay personal tax when we go over and above that"

It is always difficult to answer a question when the question is nonsense. Should I try and explain and educate? Or just say that it will sort tself out when we do the next tax returns.? Or cry?

All a bit surprising after that took on board fairly easily that they would not be getting any worthwhile Government Covid support for themselves (see above) and could only have Furlough for their other employees.

Replies (20)

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By lionofludesch
12th Aug 2020 16:06

I can sort of see where they're coming from - except that they don't seem to have moved on from the introduction of Dividend Tax.

Yeah - I'd try and explain. They'll only continue to make daft comments if they don't understand. Does the company have reserves that they can use to bulk up the dividends to higher rate threshold ? If not, just do your best with what you've got.

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By mrme89
12th Aug 2020 16:10

Unless you’re a compliance factory churning out company accounts for £300, I think it’s your job to educate.

As Lion has alluded to, the ‘daft questions’ will keep coming.

Personally, I’d much rather have them question things than listen to some random guy in the pub that once did his own tax return 10 years ago.

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By Gone Sailing
12th Aug 2020 16:23

You have only one client that needs it explained? :)

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By SXGuy
12th Aug 2020 16:54

I always like to try and explain things to people. To a point of course. If they don't get it after a few goes there's only so much you can do.

Situations can arise where if you don't explain why they are wrong it can cost them money.

Clear example was a new client came to me last week said they had registered for vat 9 months ago and needed an accountant to sort it out for them. Turns out they had rental income so was exempt from vat anyway so was a waste of time. I could have easily decided to not explain anything to them and just got paid to de register but I felt it best to educate. Hopefully next time they decide something daft they will speak to me first.

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By Gone Sailing
12th Aug 2020 17:11

It's those that find an accountant after the first financial year end and a tax year has ended that need some 'splainin'.

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By Tax Dragon
12th Aug 2020 17:15

Was the question nonsense? Even sensible questions can include nonsense statements; was this one of those? In which case, answer the question and ignore the nonsense.

Jack Spratt wrote:

It is always difficult to answer a question when the question is nonsense.

How long have you been following Aweb?

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Replying to Tax Dragon:
By lionofludesch
12th Aug 2020 17:19

What this client is doing is double counting the personal allowance.

He says the company has a "company allowance" whereas, in fact, it's his own allowance and maybe Mrs Client's allowance.

Dividend tax has passed him by.

Diagrams are good.

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Replying to lionofludesch:
By Tax Dragon
12th Aug 2020 17:38

But what was he asking?

(And does it matter if some of the lingo was wrong?)

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By ireallyshouldknowthisbut
12th Aug 2020 17:22

You will find your clients have a logic to their understanding, which won't be completely barking mad.

I normally draw out some boxes for "them" "the company" "customer" and explain the linkages at a high level. Most people get it. Few people who have a decent business are thick, they just don't understand tax/n/accounts as no-one has saty down properly and explained it to them.

If find clients who understand and much easier work.

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By Mr_awol
13th Aug 2020 12:04

You seem to be over-complicating the issue. Are you trying to resolve these questions over email?

Quite often I find staff try to do this, and it becomes an ever increasing mess/difficult to get the point across, etc. I don't see why this cant be resolved with a five minute phone call.

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Replying to Mr_awol:
By Tax Dragon
13th Aug 2020 12:32

My point, much better explained.

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By Ken Howard
13th Aug 2020 12:06

I try to "explain" things in numbers rather than words. A quick calculation example often works wonders. Obviously, some people are hopeless with even simple numbers (or have been led to think they are) but even those may pick it up eventually if they have worked examples in front of them.

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paddle steamer
13th Aug 2020 12:23

Horse, Water, Drink.

For some the best way to explain is with a worked example with numbers showing the company and personal positions; for others you are wasting their and your time and would be as well trying to explain supersymmetry for all the good it will do.

Like a comedian you need to know your audience.

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blue sheep
By Nigel Henshaw
15th Aug 2020 07:29

Are they on software, do you see the figures quarterly? My reply would be, yes I understand things are tricky for lots of clients at the moment, lets see how the year develops and each month/quarter I will keep you up to date with the latest position - you can then answer the question later with actual numbers (they could well be right, they might pay no tax this year)

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Della Hudson FCA
By Della Hudson
18th Aug 2020 11:37


We can't expect business owners to understand tax or to use the right terminology; that's what they rely on us to do. I strongly believe that we have a responsibility to explain relatively simple issues like this to them in plain English. When new clients thank me for explaining things to them it means that a former accountant has failed somewhere along the line. 80% of tax should be easy enough to explain and I ask them to trust me on the 20% which is more complex.

I recommend picking up the phone and explaining to them in the same language that they have used rather than risking more misunderstanding by email.

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Red Leader
By Red Leader
18th Aug 2020 14:16

Lots of good advice here.

Phone is often best with these complete misunderstandings. You can end up spending hours composing technically correct emails that completely pass them by. And then trying again, to no effect.

A very seasoned practitioner I knew often used to refer to such emails as "pearls before swine". He wasn't wrong.

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By SteveHa
18th Aug 2020 22:14

Learn plain English, then tell your client in that language how it works.

I will never shy away from helping a paying client, who relies on my advice, how the world works.

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By Brenda Bonathan
19th Aug 2020 09:01

Yes, I agree you should explain the tax process even in Janet & John fashion if necessary.
This is a point that worries me regarding MTD onwards, the lack of understanding of the man/woman on the streets & how it all works is going to be a real problem.
Clients need to be educated in relation to what they think they can do & what is best for them & their business, a yearly meeting to explain all would be beneficial

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By ruth.julian
09th Sep 2020 21:53

Sometimes with the best will in the world, a client just "doesn't get it". I had a business with two partners who insisted they had a ltd company and were paid wages. No amount of diagrams, discussion, would persuade them that they were a partnership with drawings (no employees, no payroll).

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Replying to ruth.julian:
By Paul Crowley
09th Sep 2020 22:00

Company get used as a word meaning business ( by idiots )
Clients then think company means Ltd

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