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A client who came to us last year, after a botched incorporation by their previous accountant which nearly cost them £53,000 in VAT, is now blaming us for them supplying the wrong figures to HMRC for tax credits.

Due to them drawing significant sums from the company, we had to declare a large dividend to clear their overdrawn loan before the end of November, otherwise they would have had £7,500 of s.455 tax to pay on 1 December 2012. As a result of this large dividend they may have to repay tax credits.

We do advise on tax credits if asked but specially exclude this from our ToE, and only act if requested.

I feel like we were stuck between a rock and a hard place, they couldn't have afforded the £7,500 last December and not declaring the dividend would also mean higher rate tax in future years to clear this! And the overdrawn loan occurred because of errors caused by the previous accountant that we had to correct to save them the £53,000 in VAT.

So, we have saved them over £60,000 on one hand but they will lose some tax credits on the other, which they wouldn't be getting in future anyway as they have too much joint income on an annual basis if you exclude the corrections we made.

You can't win sometimes!

Anyone else helped someone out only to have it shoved in their face?

Replies (15)

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By Mouse007
16th Jul 2013 22:22

Dear Client

You are right we shall attend to the necessary corrections immediately.

I shall prepare and submit on your behalf revised VAT returns showing the additional liability of £53,000. This will be payable immediately and may well result in some sizeable penalty charges.

In addition I shall revise the company’s corporation tax return to reflect the fact that dividends were not declared in accordance with the requirements of the Companies Act 2006. The resultant overdrawn director's loan account will be subject to an advance corporation tax charge of £7,500 plus interest.

I trust you will find it more acceptable to repay the company so that it can meet these taxation liabilities than having to repay your personal tax credits.

May I apologise unreservedly for having had your best interests at heart. I now know better and should never (ever) have put that dividend through.

Please let me know if there is anything else I can do to help.

PS: I shall pre order your 40% tax club membership card for next year. These are worthy status symbols issued by HMRC in recognition of your valuable contributions. Do make sure to show it when ever you go shopping to receive an exciting range of negative discounts.

 

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By refs8
16th Jul 2013 22:45

And what have you done wrong
TBH - I would have done the same, based on the information you have given. Make some notes arrange a meeting and explain the various options to the client that could have occurred then if they are stil not happy consider resigning and letting someone else do the work. Stick to your guns if you believe you have done nothing wrong good luck.

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By Mouse007
16th Jul 2013 23:06

Do wrong ?

"... we had to declare a large dividend ..."

 

that's what

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By dbowleracca
16th Jul 2013 23:35

I know mouse, doh!
By we I meant of course the directors :)

I am seeing them next week, but in the meantime keep getting increasingly obnoxious emails saying how it's all our fault they are going to have a large tax credits overpayment and significant shortfall blah blah blah.

And they said "we incorporated to save us money and help us get the tax credits we deserve due to husbands low income", and it wasn't even us that dealt with the incorporation, just the mess that followed!

The worst part is, they initially came to see us when they were a partnership and thought we were too expensive so opted for a cheaper firm, and then came to us asking for help when they were facing action from HMRC to recover the £53,000 in VAT that was due, because the property in the partnership which they had claimed input tax on had not been transferred to the company and they had de-registered for VAT.

I've got a very good set of illustrations prepared showing the alternatives to what happened :)

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By Ned Ludd
17th Jul 2013 02:05

Tax credits yet again.....
It's an absolute joke how a lot or our work now has to be tailored around tax credits.

Can't see how you did anything wrong; I'm sure the "we" was the collective "you and the client" and must have been discussed, hopefully backed up in writing, at the time.

Things will only get worse now the tax credits income disregard has been slashed to 5k.

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By Ned Ludd
17th Jul 2013 02:09

On another note....
"We incorporate to save us money and help us get the tax credits we deserve due to husbands low income..."

Scare em shitless (apologies) with notional income and remind them that HMRC is NOT to be treated as a some kind of ATM machine.

Good luck

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By ShirleyM
17th Jul 2013 06:26

I'm curious ....

How did a botched incorporation nearly cost them £53K in VAT?

I think there is a lesson in there somewhere.

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Locutus of Borg
By Locutus
17th Jul 2013 08:13

Meeting with the client
At the meeting, explain what you have done for them, tell them tax credit advice is not part of the service and ask them whether or not they are happy. If they are anything other than entirely happy then politely insist they find a new agent and shortly after the meeting send a letter of disengagement.

It's clients like this that bring you down. Ditch them as soon as you can.

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By The Innkeeper
17th Jul 2013 08:15

to be on the safe side

have you notified your PI insurers yet.

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By King_Maker
17th Jul 2013 08:45

Did you explain everything to the clients in advance?

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By bernard michael
17th Jul 2013 09:04

"Due to them having drawn

"Due to them having drawn significant sums from the company"

They've robbed the company and now complain about having to repay the taxpayer for tax credits granted on the basis they were too poor.

No sympathy for them - tell them the  hard facts of life that HMRC are not a free lunch

 

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By dbowleracca
17th Jul 2013 10:13

@shirley
Hi Shirley

The client in question operates a freehouse pub. They set up a company and transferred the trade across but not the property and were advised to cancel their VAT registration as a partnership, meaning they needed to repay the input VAT they claimed on the purchase of the property as they were no longer making taxable supplies.

Looking through all the past emails it's a common theme for this particular client to moan about things. We were criticised for not chasing for the quarterly VAT information even though the quarter end was 2 weeks away, for example.

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By Robert Hurn
17th Jul 2013 13:28

Terms of Engagement

Worth taking a look at the terms of engagement, what do they say about tax credit advice?

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By dbowleracca
18th Jul 2013 17:31

It's excluded
We specifically exclude tax credit advice, and issue separate terms if asked to act in this area.

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By refs8
18th Jul 2013 22:37

Moaner clients, I tend to moan harder back about the state of the records, or anything that is not quiet correct or we simply disengage our services. !

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