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What is HMRC's thinking behind SA three line accounts?

What is HMRC's thinking behind SA three line...

As an accountant with sixty or so very small businesses in my client bank, I'm acutely aware of the pressure they're under on costs. To prepare three-line accounts using experience, a tally-roll calculator, a heap of receipts, details of bank payments etc, may take only 2 or 3 hours to complete, including the tax return. My fees could drop and the client would be happy. 

However, with smaller jobs I have always relied on full trading analysis (not to Balance Sheet) and comparison with previous year's figures to spot discrepancies, duplications and omissions. But then HMRC say, 'if your turnover is less than £73k, you do not need to enter detailed expenses, just the year's total'. It feels like they're saying, 'we're prepared to take a risk at this level because the possible loss of revenue is immaterial'. Basically I feel a tension between good practice, client needs and HMRC's possible enquiries.

A friend in a separate practice said he has used the three-line option when he just couldn't balance the balance sheet for lack of accurate information. To be frank, that seems sensible and practical when a very small trade is involved. But I still feel the unease of not really knowing HMRC's thinking; maybe they want us to feel like that to keep us on our toes?! Members views would be much appreciated.


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08th Dec 2012 19:18

Your friend is right

There is no requirement to submit (or prepare) a balance sheet under SA and none of my small business clients have ever asked for one (or would understand it if they did). With cash accounting coming in next year (following the autumn statement?) the actual situation for most one man bands will be recognised.

I am not saying you don't need to properly analyse the numbers and advise clients accordingly.

As for HMRC keeping us on our toes - pot/kettle?


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By pawncob
08th Dec 2012 20:45



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09th Dec 2012 10:42

Surely the accounts should also be used by the client to evaluate how his business is performing and not just for the tax return. Anthing else could lead to bad business peformance and ultimately collapse ( you then lose ongoing money earning capablity)

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09th Dec 2012 14:04

Up to you really

The rules are there to simplify things and, yes, HMRC recognise that, for the majority of people who don't use accountants, a 3 line set of accounts may well risk a bit of guess work or corner cutting and this will be enhanced when, as mm-e says, cash accounting for very small businesses comes in.

If however a taxpayer decides that it would be better/easier to use an accountant, then it is up to the accountant to decide on the level of skill & accuracy to use.  Unless there are only a couple of dozen transactions in the year, I won't do a tax return where I just add up income & expenses per the books or receipts and stick them on the return, the client is perfectly capable of doing it for themselves.

So for all our self employed clients we still prepare a detailed P&L to generate the totals to enter.  As & when cash accounting comes in for some of our clients we'll let them know what it means and they then have the choice of whether they do their own returns and maybe just get us to check them over.

On the balance sheet question, with more people needing to use their business overdraft or other credit facilities to prop up their personal drawings, the risk you run is that some of the interest should be disallowed, but without even a very basic balance sheet, it's impossible to determine how much.  So I think it's always worth preparing even a summary balance sheet.  This obviously is much easier if you are using accounts software rather then totting the numbers up & sticking them direct;y into the return.

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to Glennzy
10th Dec 2012 11:58

Three-line accounts

That's very interesting, and helpful. We have done summary Balance Sheets when the info has been relatively easy to assemble. And we do use accounting software of course (Quickbooks and VT mainly, Sage if forced) although we don't ask an everyday tradesman of mature years to leave his comfort zone of handwritten records - a poor exercise book is far easier to interpret than a botched computer file. 

The problem we would have in routinely preparing a summary Balance Sheet is of course that very few small traders will run a business account, despite strong recommendations and warnings of potential HMRC issues. And those that do often randomly cross business and private over between the accounts as you know. And they're very fee-sensitive. Perhaps we've done too much hand-holding, I really don't know. I would say that three quarters of sole proprietor businesses would be better employed, they have neither the office discipline, nor back-up, nor clerical interest for 'real' self-employment. As one always says to me, 'Jes, I'm just a digger driver, I leave all that *!* to you'.

Thanks for your observations though, we'll certainly re-evaluate the summary Balance Sheet routine, it would be good.  

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11th Dec 2012 11:14


The idea is to put everything through, TV,s and the works.

What HMRC cannot see they are not bothered about.

Even the tax office have allegedly given out advice along the lines of "just put down some of your earnings and that will be ok" not helpful but it does show their firm culture approach.

Get something late and its a different approach granted.

That is why they don't like accounts because it is easier to spot evasion and that creates more work which they do not want.

If they can create the impression that Evasion happens less often then they are a success and that is what it is all about these days....nothing to do with collecting the right amount of tax at all.

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11th Dec 2012 11:31

we try where possible to use integrated system

but we never produce a BS fror HMRC tho our clients can have it if they wish, if we are given a pile of receipts and bank statements we treat them accordingly - i do not feel it is upto us to satisfy our professional 'needs' willy nilly at our clients expense

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to ireallyshouldknowthisbut
11th Dec 2012 16:32

I am with you on this one Carnmores.

carnmores wrote:

but we never produce a BS fror HMRC tho our clients can have it if they wish, if we are given a pile of receipts and bank statements we treat them accordingly - I do not feel it is up to us to satisfy our professional 'needs' willy nilly at our clients expense

If a Balance Sheet is of no use or worth to either the client or ourselves, then we do not prepare one unless they ask for it (which no one has ever done!)

I simply do not understand this seeming obsession with Balance Sheet preparation if it is of no use to anyone. HMRC do not give a rat's if one is prepared or not in most small cases and if they do need drawings details (say) in an enquiry, these are easily provided. 

Just because one can create a Balance Sheet does not automatically mean that one should.

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11th Dec 2012 17:32

Not worth being in practice

As someone who is thinking about setting up on my own I now question whether or not this is worth it.  Why would I pay: £165 professional membership, £150 practising certificate, £200 PII etc etc etc.  What would be the point of being a member of an accounting body at all?

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to johngroganjga
11th Dec 2012 18:24

Good question

snute2008 wrote:

 What would be the point of being a member of an accounting body at all?

Many people see no point at all. I am not sure that I would if I was starting out in practice now!!

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to johngroganjga
11th Dec 2012 23:32

Not worth being Qualified in a small practice

And of course (pun intended), the cost of CPE/CPD

However, don't automatically rule out PII unless you have deep pockets!



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to johngroganjga
12th Dec 2012 09:53


snute2008 wrote:

As someone who is thinking about setting up on my own I now question whether or not this is worth it.  Why would I pay: £165 professional membership, £150 practising certificate, £200 PII etc etc etc.  What would be the point of being a member of an accounting body at all?


You don't get anything for your money, just the opportunity of a good kicking if you get something wrong..and you have to pay for that too.

As for indemnity insurance.....If you don't have any that provides a guarantee that you will not be sued.

It is the first question a lawyer asks.

and how come your PC and PII is so cheap?


The education is quite important or at least I always thought, but even that is a hindrence in a dumbed down cheap as chips market. Especially when the answer you give is not what they wanted to hear.

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12th Dec 2012 07:36

The borderline

The point where 3-liners were acceptable seems to have marched up from £15K to begin with (sensible and practical), to £30K (hmm) to £70+K (potentially dodgy).  We prepare figures (I hesitate to call them accounts) but when it comes to Tax Returns we operate with an effective line of around £20K.  Above that and I want us to include the detailed figures rather than the total because I just feel more comfortable that way.  I have yet to see any statistical analysis of whether this theory leads to more or fewer enquiries.  But then the whole 'attach the accounts or not' argument is still far from resolved.  

The problem is that some accountants appear keen to put their professionalism over the needs of the client.  Does anyone (client, Revenue etc) get value out of a balance sheet?  Does it make the figure of profit level materially dodgy?  No?  Then why waste your time and their money on an exercise which is little more than showing off from the clients' POV.

The problem is that accountants are trained in giving business advice and for a great many of our clients they are not businesses but really individuals who are inadvertantly self-employed.  The business planning they need to do is - get more work and - you really should do something about a pension one of these days.  Everything else is unnecessary chrome to feed the bank balance of the accountants and that certainly isn't my way.

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