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Kettle boiling with hot water | accountingweb | Accountant shares responsibility for client’s failure to pay tax

Client’s unpaid tax lands accountant in hot water


In a case that should be a cautionary tale for advisers, an accountant who became a director of a client’s company faced criminal charges when the company failed to pay HMRC the taxes it owed.

30th May 2023
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Previously we met Charles Horder, a qualified accountant who agreed to act as a director of his client’s company, and found himself facing criminal charges when the company failed to pay the taxes it owed.

Horder had been issued a Notice of Requirement (NOR) by HMRC seeking payment of £78,593.47 as security for future PAYE and national insurance (NIC) liabilities. Those liabilities belonged to Quadragina Ltd, a company essentially controlled by his client Yakub Yousuf, but of which Horder was the shareholder and director.

Despite being reminded by HMRC that failure to comply with the NOR could result in criminal proceedings, Horder did several unwise things.

  • He managed to allow Yousuf to carry on paying salaries despite the lack of funds to settle PAYE or NIC.
  • He submitted Real Time Information (RTI) returns (around £9,000 a month) for several months without any payments to HMRC.
  • He made only a partial payment towards the NOR – too little, too late.
  • He did not appeal against the NOR for 14 months, by which time criminal proceedings had already been lodged with the Magistrates’ Court.

Horder Goes To The FTT

The first tier tribunal (FTT) was tasked with deciding whether the late appeal should be allowed. Judge Barbara Mosedale also took evidence regarding the substantive merits of the appeal itself so that, in the event she allowed it, it could be determined swiftly and efficiently.

As it turned out, the FTT decided in a closely reasoned judgment not to admit the late appeal. This was despite the fact that, if the appeal had been admitted, it was very likely to have succeeded. Nonetheless the countervailing arguments inclined the FTT to refuse to admit the late appeal.

Horder applied for permission to appeal the decision to the Upper Tribunal (UT). 

Horder Goes To The UT

His application was granted on two grounds. The UT (Mr Justice Miles and Judge Guy Brannan) was asked to consider whether:

  1. The FTT had breached the “principles of domestic, community and ECHR law in hearing the evidence and arguments of the parties in full and finding that the Applicants’ appeals would have succeeded save for their failure to file appeals in time but then failing to grant an extension of time to file the appeals”, or
  2. “The FTT erred in failing to recognise that it had a lesser latitude over the exercise of its discretion to extend time when dealing with a case with criminal consequences”.

First ground

The UT was not convinced by the argument that because the FTT found it likely that Horder would succeed in his substantive appeal, the interests of justice required the FTT to grant his application to appeal out of time.

While an applicant’s prospects of success in its substantive appeal do constitute a relevant factor in stage 3 of the Martland test, that does not equate to the proposition that because an applicant has a strong case, permission to appeal late should usually be given. 

The strength of a case is merely one matter to be taken into account in the balancing exercise. The FTT had also to consider whether there were “countervailing considerations” meaning permission to appeal late should be refused. In this case, the FTT did consider that there were such considerations.

  • NORs exist to protect revenues, and to prevent companies continuing to trade without paying over the tax they collect on HMRC’s behalf. Quadragina had done precisely that, and the risk the NOR was meant to reduce was instead increasing.
  • The way the company was run appeared to be deliberately courting disaster. “It seems the money received by the company was, at Mr Yousuf’s choice, spent entirely on rent, wages and expenses so that none was left to pay HMRC.” 
  • “Permitting a late appeal would endorse the appellants’ decision not to challenge the NOR, nor to fully comply with it”.

The UT found that Judge Mosedale had been right to refuse the application.

Second ground

The FTT gave careful consideration to the likelihood of potential criminal sanctions being suffered by Horder. The FTT decided, however, that there were countervailing factors that outweighed the importance of the likelihood of criminal sanctions.

The UT concluded: “The FTT’s decision was meticulous in detail and logical in its structure. It discloses no error. We therefore dismiss this appeal.” 

Horder’s next destination will be the Magistrates’ Court.

Salutary lesson

This case should be a salutary lesson for advisers. 

Horder, no doubt with the best of intentions, allowed a persuasive and charismatic client to behave irresponsibly. Worse, he voluntarily signed up as an active instrument of that irresponsibility. As a professional, he must have been aware that his status as a director would expose him to a share of the guilt, yet he carried on signing the cheques.

If he had appealed in a timely manner and – most importantly – refused to allow the company to carry on trading insolvently in defiance of the NOR, he could have been spared much pain.

To echo Sir Humphrey Appleby, accountants must support their clients, but as their standard-bearer, not their pall-bearer.

Replies (11)

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By Hugo Fair
30th May 2023 20:31

As per comments after Part 1 of this article, there surely HAS to be more to the background details than those to which we are made privy here?

"Horder, no doubt with the best of intentions, allowed .."
Sorry but why is there 'no doubt' and in whose eyes?

Whatever the cause of the initial naivety & gullibility (on an industrial scale), the negligent and wholly reckless (lack of) professional actions reported here even after "being reminded by HMRC that failure to comply with the NOR could result in criminal proceedings" would be breath-taking even in an unqualified/unrepresented business person ... here it is a near declaration of deliberate self-harm.

Thanks (4)
Replying to Hugo Fair:
By Justin Bryant
31st May 2023 09:54

Yes, it's mad. I find (annoyingly) that 99% of the time people say "no doubt", there is at least some doubt. A bit like how the word "literally" is now totally misused to mean almost the opposite of its correct meaning.

The worst case is when someone says "no doubt you will be aware...", when I'm either very far from aware of whatever it is they're writing/talking about or I believe the exact opposite to what in their view should be a doubtless fact.

No doubt this sort of bad English will simply continue or get worse.

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By Nickob
31st May 2023 10:06

The concluding paragraph is headed "Salutary lesson". Au contraire, there's nothing salutary about it! I presume they mean "Cautionary lesson"

Thanks (4)
Replying to Nickob:
By Justin Bryant
31st May 2023 10:39

Unlike the "no doubt" thing, that's OK and correct English. See:

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By ColA
31st May 2023 10:40

The principal reason I eschewed directorship for a family group of companies that I acted as consultant for approaching a decade.
Reputed illegalities & borderline infractions dissuaded me from ever entering the legal burdens incumbent.
Underlined by the now MD suggesting to have one of my close associates ‘worked over’ if I so chose - immediate declension & inner horror!
My successor foolishly succumbed unwisely to become a director 20 months later.

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By Beef curtains
31st May 2023 10:52

Anyone in practice who accepts the directorship of a client company is not just conflicted, he's a mug.

Thanks (7)
Replying to Beef curtains:
By WallyGandy
31st May 2023 13:10

I'll say... been asked on several occasions to become a client company director. Always the same answer.... NO. Whilst the above case is somewhat extreme, the thought of a Personal Guarantee is enough for me for starters
That said, I am a director of two companies. My own and my wife's.
As I say to clients... take care whom you go to bed with. (I mean FINANCIAL bed!)

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By tonyglasbey
31st May 2023 12:03

One up for the fundamental ethical principle of objectivity. I can't see any way of maintaining accounting objectivity when you are also a director of the clent company. Even non-exec's are likely to be conflicted.

Thanks (1)
By johnjenkins
31st May 2023 15:59

If he was shareholder and director then it was his business and therefore not a client.

Thanks (1)
By Postingcomments
31st May 2023 17:04

The article sounds as though Andy is going in to bat for Horder. I'm not sure why. It sounds as though he hand a pretty big hand in his downfall - and that is just from the limited information we are given here.

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By AndrewV12
01st Jun 2023 15:01

Previously we met Charles Horder,

Someone is a carry on fan.

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