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Witholding expenses from rental accounts

Witholding expenses from rental accounts

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I have sole trader client who also has small portfolio of rental properties and have prepared her tax reurn for a number of year. Client does her own bookkeeping on simple spreadsheets and provides us with the paperwork to check over and prepare her tax returns. This year her spreadsheets have no mortgage interest which is an fairly considerable amount. On questioning the missing figure she has informed me she doesnt want to claim tax relief on the mortgage interest this year and is happy to pay the higher amount of tax as she wants her rental profits on her tax return to be higher and is of the opinion that it is her decision to omit expenses from her rental accounts if she doesnt want to claim tax relief. I have explained that the rental acounts wont show a true and fair representation of her rental business without the mortgage interest and that it should be included however she wont provide the information but wants her tax return prepared now or she will go to an accountant who will prepare the accounts in the manner she wants as she believes i am incorrect in demanding the mortgage interest figures. Just wondering what other accountants would do in these circumstances. The person has been a good client in the past with little hassle and pays quickly so shame to lose her but I am not happy submitting the tax return without the mortgage interest.

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By andy.partridge
23rd Aug 2017 17:35

It wouldn't be too much of a shame to lose a crook.

She wouldn't be about to raise some new funds on the strength of her forthcoming SA302 would she?

You know what will happen then, don't you. Either she will want the return amended. 'Oh, I'be been thinking and I reckon you are right after all . . . ' or she will seek to put 2 years worth of interest in her next year's spreadsheet. 'Well, it's only fair isn't it . . . '.

Now what are you going to do?

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By Duggimon
23rd Aug 2017 17:36

Well it would depend I think on her reasons for doing so. Is there perhaps some underhanded reason for wanting to show higher profit than she has to? Perhaps seeking further mortgages on new properties?

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By Martin B
24th Aug 2017 11:39

I assume all is ok for previous years and you checked that the mortgage interest claimed as a deduction was supported by satisfactory documentation.

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By mrme89
24th Aug 2017 11:52

If she doesn't want the tax relief, just tell that you will put the interest in the accounts so that the accounts show a true and fair reflection on the property business, but will disallow the cost on the tax return.

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David Winch
By David Winch
24th Aug 2017 12:58

Is it possible she has actually paid off the mortgage but does not want to tell you because you will ask her where the money came from?

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