Save content
Have you found this content useful? Use the button above to save it to your profile.
A picture of a disciplinary warning | AccountingWEB | Firm loses chartered status over an unqualfied's misconduct
istock_Disciplinary-warning_Andrii-Yalanskyi

Unqualified director loses firm its chartered status

by

An accountancy firm has been stripped of its chartered accountants status after its “plainly wrong” approach to accounting and filing meant a client was subjected to investigations and penalties. The client then had to appoint a new accountant to sort out the mess with HMRC.

5th Jan 2024
Save content
Have you found this content useful? Use the button above to save it to your profile.

BSS Associates Limited, a London-based firm, “passively permitted” a client to significantly under-declare income for both VAT and accounts. The firm even filed the client’s accounts with Companies House when they were not ready in order to avoid a late-filing penalty.   

When the client died, the executors inherited inordinate difficulties as a consequence of the accounting firm’s conduct, where they had to settle the estate while dealing with outstanding HMRC enquiries.

As a result of a disciplinary hearing, published on 3 January, the accountancy firm can no longer describe itself as chartered accountants for five years, and have been ordered to pay costs of £22,605. 

The disciplinary tribunal said BSS Associates’ conduct was “deliberate” and its approach to statutory returns was “plainly wrong and yet was continued over an extended period of time”.

Mobile massage services

The client (referred to as Ms B in the disciplinary notes), who provided mobile massage services, first met with Mr D from BSS Associates in July 2012. 

Her business model revolved around offering tantric massage services through a website; a customer would call and the receptionists would arrange a therapist to meet them in a hotel for treatment. 

The customer would pay the therapist in cash, who would deduct their fee and then transfer the remaining amount into the flat-rate VAT-registered company’s limited bank account. Mr D was told in this meeting that 40% of the income in the bank account was retained and the remaining 60% was used for disbursements and expenses. 

BSS took on the mobile massage company as a client, where it prepared and filed accounts for the years ending 31 July 2014, 31 July 2015, and 31 July 2016. 

HMRC opens an enquiry

By 27 August 2019, the limited company had dissolved via voluntary strike-off after HMRC opened a VAT enquiry in October 2016, declaring that Ms B’s company had been under-declaring its income. 

As the enquiry continued into 2017, Ms B appointed Mr F, a chartered accountant who was a partner at an accounting firm, to assist and negotiate a settlement. 

HMRC discovered that she had been using the company’s account “as if it was her own” and using it for personal expenses. Furthermore, an HMRC inspector raised concern about potential PAYE, VAT, S.455 tax and corporation tax implications, as well as potential fines and penalties associated with under-declared tax and inaccurate returns. 

HMRC also questioned why BSS prepared the company’s financial statements based on what Ms B said, which meant that 60% of the deposits were not accounted for.

The chartered accountant Ms B brought in to sort out the mess shared HMRC’s concerns about BSS declaring only 40% of income and expenses, despite 100% of income being deposited in her bank account by the therapists.

Also, BSS admitted to Mr F that it had filed the limited company’s draft accounts for 2016 with Companies House in order to “avoid the late filing penalty”, adding that the finalised amended accounts, therefore, need to be resubmitted.  

The accounts were filed on 30 May 2017, which was a month after the nine-month filing deadline but one day before the fine increased from £150 to £375. 

Complaint raised with ICAEW

Ms B died in March 2018, leaving Mr F to deal with the HMRC investigation. It was at this point that he raised Mr D’s conduct with the Institute of Chartered Accountants in England and Wales (ICAEW). 

But Mr D was not a qualified accountant with ICAEW, or any other accountancy regulator for that matter, so the institute directed its attention and regulation to the firm, who were chartered accountants. 

Mr D may not have been a chartered accountant, and therefore didn’t fall under ICAEW’s jurisdiction. He held 49% of shares in BSS as well as holding director and manager positions at the firm, so as a non-principal there, ICAEW found that his work would be subject to review within the firm. 

There would also be the requirement for the firm to ensure he had appropriate training and supervision, especially since he does not hold a membership with an accountancy body. 

“Had BSS exercised proper oversight it would have become apparent that the incorrect accounting treatments were used, and the situation may have been identified and corrected prior to the HMRC VAT investigation,” noted the tribunal. 

Tribunal’s decision

The disciplinary tribunal found that Ms B “suffered adverse consequences” as a result of BSS’s accounting and filing, including investigations and penalties, which was then passed to her executors when she died.  

In particular, the tribunal expressed concern about the lack of insight displayed by the “exceptional and unexplained accounting scheme for income”.

“Passively permitting a client to become complicit in a structure whereby the company repeatedly and significantly under-declared its income for both VAT and accounts purposes is at best extremely negligent,” noted the tribunal. 

It added that it was “obvious” that HMRC was going to scrutinise the matter in assessing whether any tax evasion was at play. 

The tribunal was also troubled by Mr D’s apparent lack of concern by the insufficient accounting records while taking the client’s word for the expense amounts, without any supporting documentation. It also concluded that he appeared to have considered that the company’s use of the flat-rate VAT scheme meant that they only had to keep minimal records. 

By not allowing Mr D to operate a director’s loan account, the tribunal found that neither BSS nor the client knew if she was required to pay s455 tax should she have owed the company money. 

Another issue flagged was that there was no evidence of the company’s director’s approval of filing draft accounts with Companies House. 

Mr D repeatedly pointed the blame on Ms B’s previous accountant for the accounting policies. However, the tribunal argued that it was the responsibility of BSS to advise the client that the methods they allegedly inherited were incorrect. They didn’t however and continued to prepare inaccurate accounts. 

As for Mr D, the tribunal was also troubled by his ongoing “commanding role” in BSS as a result of the financial stake he has in the member firm, despite his lack of professional status. The tribunal noted that the firm was unable to make a submission about its ability to meet the costs order without seeking approval from Mr D. 

“It was troubling in a member firm whose sole director and professional principal was unable, on the face of it, to act with the expected degree of management and control without permission from an unqualified person whose unsupervised actions lay at the centre of all of these matters,” concluded the tribunal.  

Sentencing

Although BSS admitted its failings, the tribunal questioned why it couldn’t have done so sooner. 

In sentencing, the tribunal highlighted how BSS was in a position of trust in supervising and controlling “errant employees” while they were making and filing business records and tax returns, so it viewed the firm’s misconduct as very serious. 

The tribunal concluded that an appropriate sanction would be to prohibit the firm from using the description “chartered accountants” for five years, which would deter any member firms from acting in the same way. 

With the firm only having modest income, imposing a penalty will not in itself improve the firm’s conduct in future, so the tribunal felt it would be disproportionate to apply a fine. However, BSS did incur the financial charge of paying costs in the sum of £22,605.

If an individual member faced a disciplinary under the same circumstances, the tribunal said they would have been at risk of an exclusion from the professional body and could be facing penalties of £10,000. 

Replies (20)

Please login or register to join the discussion.

avatar
By AndyC555
05th Jan 2024 10:03

"Her business model revolved around offering tantric massage services through a website; a customer would call and the receptionists would arrange a therapist to meet them in a hotel for treatment."

Riiiiiiiight.

'Tantric massages'.

Sure.

Thanks (10)
Replying to AndyC555:
avatar
By AndrewV12
05th Jan 2024 10:30

Stop reading between the sheets, I mean the lines.

Thanks (10)
Replying to AndyC555:
avatar
By martinatal
05th Jan 2024 10:42

The immediately preceding article to this that I had been reading was a Telegraph Culture feature article "The year that British cinema went sex mad – and struck box office gold" on 1970s British sex comedy films such as "Confessions of a Window Cleaner". Couldn't be a better segue. Ah well. Back to work.

Thanks (0)
avatar
By Postingcomments
05th Jan 2024 10:17

Remember Miss Whiplash? The London dom who rented a flat from Norman Lamont and went up against HMRC in court? Ah, the 90s!

Thanks (6)
Replying to Postingcomments:
avatar
By AndrewV12
05th Jan 2024 10:29

Faked her own death at beechey head I believe. You know she left a car unlocked top of the cliffs and done a runner.

Thanks (3)
David Ross
By davidross
05th Jan 2024 10:17

We cannot say that this story has a "Happy Ending"

Thanks (12)
Replying to davidross:
avatar
By AndrewV12
05th Jan 2024 10:27

That's enough this could get out of hand, no pun.

Thanks (4)
avatar
By Postingcomments
05th Jan 2024 10:18

The accountant was massaging the figures? Tantrically perhaps.

Thanks (11)
Replying to Postingcomments:
avatar
By AndrewV12
05th Jan 2024 10:26

Leave it there.

Thanks (3)
avatar
By listerramjet
05th Jan 2024 10:23

Some of us have made the observation many times that the term accountant should be reserved to those with appropriate qualifications. Were this the case then there would likely be criminal charges arising, instead of a “slap on the wrists”.

Thanks (1)
Replying to listerramjet:
avatar
By AndrewV12
05th Jan 2024 10:32

Was the masseur qualified ???

Thanks (0)
Replying to listerramjet:
avatar
By why always me
05th Jan 2024 11:29

Passing an exam does not a moral, fit for purpose person make:)
Ive had a few dubious bosses over the years and you only need to look at the weekly multi million pound fines issued to 'big firms' for there failings (greed)

Thanks (9)
Replying to why always me:
avatar
By Open all hours
05th Jan 2024 15:07

My experience also. Letters after a name will take you so far but on their own, not far enough.

Thanks (0)
avatar
By AndrewV12
05th Jan 2024 10:26

“passively permitted” a client to significantly under-declare income for both VAT and accounts

Passively permitted, now there's a new term how do you prove or unproven that. were BSS Associates Limited more guilty of not covering their tracks than any of the above.

Thanks (0)
avatar
By SuperAccountingSteve
05th Jan 2024 10:33

ooh la la

Thanks (0)
avatar
By SuperAccountingSteve
05th Jan 2024 10:33

ooh la la

Thanks (0)
avatar
By paulwakefield1
05th Jan 2024 13:17

How unusual for the ICAEW not to issue a fine. Maybe that's only reserved for those who make a grievous error such as ticking the wrong boxes on a form.

Thanks (5)
Replying to paulwakefield1:
avatar
By FactChecker
05th Jan 2024 13:25

... or perhaps fining a corporate body doesn't give them the same sense of pleasure as when fining an individual into penury.

They must be gnashing their teeth that the incompetent Mr Bean (sorry Mr D) wasn't a member ... which is really the moral here (you're better off not being a member)!

Thanks (9)
avatar
By sammerchant
05th Jan 2024 13:57

BSS Associates? One initial too many, I think.

Thanks (3)
avatar
By Ian McTernan CTA
05th Jan 2024 16:11

£22,605 in costs..no wonder they decided not to issue a penalty!

Maybe it's time for the ICAEW to include investigations insurance in the membership fee (covering costs of enquiries by them into you)...

As for the company, I expect they will just close that company and open a new one and apply 'chartered accountants' to that one.

Thanks (0)