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Disciplinary: Practitioner excluded after concealing director’s loans

The ICAEW has excluded an Oxfordshire-based small practitioner who deliberately concealed the existence of a director’s loan in order to make tax savings for his clients.

18th Feb 2020
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The ICAEW disciplinary tribunal considered that exclusion was the only sanction for Andrew Watson, seeing that the concealing information was not an isolated case as it had happened with two different companies over a period of three tax years.

Watson also has to pay a financial penalty of £5,000 and the costs of £18,000.

The case centred on the corporation tax returns Watson prepared for two limited companies from 2010 to 2011. The tribunal heard how Watson failed to include the overdrawn director’s loan accounts in the companies’ CT600s and accounts.

Watson did not include these loans within the notes to the accounts, as required by FRSSE. He did, however, write to a director of both limited companies and advised them not to declare the loan in the CT600 as it would attract tax at 25%. He recommended that they wait and see if HMRC spotted it.

But without disclosure in the CT600, coupled with a failure to disclose in the accounts meant that HMRC would not know there was an outstanding director’s loan at the end of the tax year.

However, Watson insisted the director’s loan omission was a short cut and not a ploy to avoid additional tax as it was anticipated that the client would be paying back the loan within nine months.

The tribunal, therefore, did not believe Watson’s shortcut assertion and concluded that he had deliberately concealed the information.

It is worth noting Watson suffered a prolonged period of ill health and sold his practice in 2012, shortly after the issues at the heart of this complaint.

Although the tribunal took into account Watson’s good character and clean disciplinary record, this was not an isolated case in that more than one client had been involved and in one case, the same had occurred over three consecutive years. And so, Watson’s fate was ultimately decided as exclusion with a hefty financial penalty.   

Chris Cope, director of Accountants National Complaint Services Ltd, comments:

“I should probably make a little comment on this case, seeing that I was instructed by Mr Watson, who was represented by Counsel.There were, in all, some 12 complaints of which ten were either found not proved or were withdrawn by the Investigation Committee. The allegations went back as far as 2004. The latest occurred as long ago as 2012.”

If you are presently subject to a complaint, you can call the Accountants National Complaint Services Limited for advice (01769 581581) or visit their website here.

Replies (6)

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By mkowl
19th Feb 2020 10:26

The fait accompli in this is clearly the letter to the client

Just a warning to us in practice really never to worry about informing clients of tax bills that they have incurred

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By Husbandofstinky
19th Feb 2020 11:31

Can empathise with finding yourself in this position totally and trying to patch things up and closing the gate whilst the horse has already long since gone. Too many out there treat the company bank account like their own personal fund and then it is patch up with dividends etc.

However, letter to the client on this one beggars belief. Absolute hiding to nothing I guess in legal terms when that one popped out of the woodwork..

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All Paul Accountants in Leeds
By paulinleeds
19th Feb 2020 11:45

My ex boss, a Chartered Accountant, would never allow me to show a director's overdrawn balance on a CT600 for the same reason. "We do not want the client paying 25% of the loan account". He'd always insist that I remove it from the CT600. Even the tax department would say the same thing on their tax review of the file.

He'd always argue that a dividend could be declared in 9 months time to clear it. The trouble was that the company had no reserves at the year end and in 9 month's time the director had continued draw another amount similar or larger amount. He would not accept bed and breakfast loans.

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By fawltybasil2575
19th Feb 2020 12:46

@ Richard.

(1) Your case summary includes:-

“Watson also has to pay a financial penalty of £5,000 and THE (my emphasis) costs of £18,000”.

I emphasise “the” since it implies that the £18,000 was the TOTAL costs applied for by ICAEW (and that those were the TOTAL time costs of their investigations and subsequent attendance at the Disciplinary Tribunal)..

(2) The comment by Chris Cope includes:-

“There were, in all, some 12 complaints of which ten were either found not proved or were withdrawn by the Investigation Committee”.

The total Costs thus included time costs incurred by the Investigation Committee in relation to the TEN matters either withdrawn by that Committee or found not proven.

Whilst certainly therefore not condoning the actions of the former member (notwithstanding his long period of ill health) perhaps Mr. Cope would comment on the horrendous Costs of £18,000 determined by the Disciplinary Tribunal, and specifically the (prima facie) failure of the former member’s Counsel to persuade the Disciplinary Tribunal to effect any reduction in that £18,000.

A “broad brush” approach would suggest that a reduction to 2/12ths of the £18,000, ie £3,000, should have been determined by the Disciplinary Tribunal (I appreciate that such 2/12ths concept is of necessity too simplistic but certainly Counsel should have been able, on the facts supplied, to persuade the Disciplinary Tribunal to effect a huge reduction in the £18,000).

Basil.

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Replying to fawltybasil2575:
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By Ian McTernan CTA
19th Feb 2020 14:15

£18,000 is probably only 2/12th of the total costs, seeing as these things tend to set new records in enormous costs....

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By thomas34
20th Feb 2020 17:07

Yet another sad case of a sole/small practitioner incurring fines and costs that are likely to be disproportionate to his gross fees for the year compared to the big four fines for outrageous audit breaches. I doubt whether the fines levied on the big four would even put a small dent in the partners' profit shares but £23,000 is likely to be life changing for this chap.

The best business decision I ever made was to jump ship from the ICAEW some 15 years ago for this very reason. Sole practitioners are the low hanging fruit for the ICAEW.

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