A small Ltd Co and new client had about 2 years of expenses stuck in a draft folder. Director has paid for these on personal accounts and credit cards. These were not accounted for in either VAT returns or Accounts. Approx VAT under claimed £10k and Corporation Tax overpaid of £10k.
I think the company must come clean on the VAT under the error reporting procedure but not sure if the previous years accounts should be adjusted and new corporation tax returns filed. Also the cost of fixing this I think should be claimed from prevous Accountants.
Appreciate any suggestions on best practice approach.
Replies (16)
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What is a draft folder?
Am I correct in saying the company did not reimburse the director?
Why not reimburse him now?
Whose name on the expenses vouchers?
If genuine company costs, why paid on personal credit cards.
First issue would be make sure client has an adequate system to avoid similar future errors.
At £60,000, that is a serious difference. I assume director has absolutely no clue what the accounts should have shown
I wouldn't be looking to ask previous accountants to foot the bill when you don't even know if this info was even passed to them.
60k is a lot of money to have missed. If the director has signed the accounts then surely he has agreed them? Why didn't they query those items previously?
Not even sure off the top of my head how you can miss 60k and still manage to balance the accounts but hey ho.
Business not as profitable as originally thought.
What a gormless haporth this director must be !
Usually, the problem is the director claiming too many expenses and the accountant trying to find polite ways of saying "no chance".
£50k of unrecorded expenditure? How did the client not spot that? Or is the company so profitable that it’s immaterial?
Anyway, let’s start by assuming that all of the expenditure is legitimate expenditure and fully deductible. Something to check, though.
Is there sufficient evidence, as required, to support a VAT claim? (Given that it’s a claim, I wouldn’t describe it as “coming clean”).
Depending on materiality you might want to show it simply as a prior year adjustment in the accounts. But depending on timing you may have to make an overpayment relief claim for out -of-time CT returns.
Why do you automatically assume that these omissions are the former accountant’s responsibility? You don’t say, so all we can assume is you believe he should have a crystal ball and omniscience.
So how is your crystal ball treating you? What will you do when the boot is on the other foot?
Is the reason they moved accountant that the old one wouldn't put these costs in?
I just lost a client as I refused to expense his whole life through the business.
Apparently I was "inflexible"
Shame.
Was there also a company credit card?
Were the expenses given to the accountant?
If not, how would the previous guy have known?
Where did the money come from to pay the card?
Not seeing it as automatically not the clients fault.
Fair enough, not familiar with Xero, and had assumed that neither invoices nor payments had gone near any kind of bookkeeping!
Jeeez! The replies in here are so helpful. More questions than answers.
If the client hasn't claimed these, see it as an extra work order and get the VAT reclaimed and Accounts and CT adjusted. Send a fee and everyone is happy.
Hmrc may query it but if its legitimate then there are no issues.
Full circle
See first answer line three
What is a draft folder?
Am I correct in saying the company did not reimburse the director?
Why not reimburse him now?