Content seriesView full content series
A partner at an accountancy firm has been branded “extremely irresponsible” after filing a client’s £5m tax reclaim without the requisite tax legislation knowledge or possessing adequate professional scepticism and skill, according to November’s ICAEW disciplinary orders.
Mandy Brown’s severe reprimand should come as a warning for tax accountants preparing for another self assessment season.
Brown admitted to being “out of her depth” when she filed the client’s tax return. She was stumped by the client’s tax affairs which were very complicated and only became increasingly so.
The disciplinary tribunal heard how the rules for claiming relief for irrecoverable debts as business expenses and carrying losses back to previous years bewildered the defendant.
Brown first incurred HMRC’s investigative wrath after submitting her solicitor and property developer client’s 2010-11 tax return with a £5,042,837 tax reclaim. However, HMRC’s investigation uncovered other errors, including:
- The £30,859,057 calculation of self employment losses had not been prepared under GAAP
- The client was not entitled to sole trader relief
- The compound interest on tax relief had no British legal basis; and
- The claims for losses for the tax year ended 5 April 2007 were out of time.
Despite HMRC revising the tax calculations, Brown failed to take much of it on board because she filed the same client’s 2013-14 tax return claiming the similar reliefs and a substantial claim for compound interest that HMRC had previously rejected.
In this tax return, Brown had included claims for trading losses of £40.9m. The tribunal flagged the £43m of compound interest based on the rate of 29% over a 16 year period, because she should have realised such a claim should not have been made on a tax return.
Besides, the tribunal noted, a claim for compound interest should not have been made because HMRC calculates interest and simple interest is only ever awarded. The rate of 29% was both unprincipled and egregiously high.
The ICAEW tribunal acknowledged that Brown bore intense emotional pressure during this period when the client was clearly dying. Helping him as much as she could, Brown followed her client’s instructions. She accepts that she didn’t question the client’s advice, mainly because the source of the advice was the client’s tax barrister brother.
Dissatisfied by Brown’s explanations for the huge sums being reclaimed, HMRC complained to the ICAEW.
The tribunal concluded that the defendant was extremely irresponsible for claiming large sums of money without legal justification.
While HMRC spotted the tax return errors, the tribunal reminded Brown that the tax department shouldn’t have to do that. “[HMRC] is entitled to trust that professional accountants who represent clients know the tax legislation under which they practice and have the requisite knowledge skill and scepticism required. It does not function to pick up very serious errors in professional work and standards.”
Brown now must pay £9,312 in costs. Her unblemished 33-year ICAEW record and her willingness to co-operate persuaded the tribunal not to impose a fine.
Chris Cope (solicitor specialising in accountancy complaint and disciplinary cases and from the Accountants Complaint Services Limited ) said:
The outcome could have been worse. Sincere regret, insight, cooperation and an absence of any dishonesty or lack of integrity, clearly assisted when sanction was considered. Aggravating features included the sheer scale of the sums involved and the repeated conduct in 2013/14 which removed any suggestion that this was a one-off offence.
It is significant that the Revenue reported this matter to the ICAEW. That must be almost unprecedented. Generally speaking, the Revenue does not report accountants. Maybe it should report far more than it does. Readers may or may not agree.
The most important feature of this case is that no professional should sail into unfamiliar waters, unless he or she has appropriate navigational skills. In other words “don’t dabble”. This applies just as much to lawyers as to accountants.
You can find out more about Chris Cope and the Accountants National Complaint Service by visiting their website here.