This was a deliberate action to prompt HMRC to investigate, and “kick start” his client into doing something.
We have all known clients who behave like that; they refuse to provide sufficient information to complete their SA tax return, then they blame the accountant when penalties are imposed.
Boris Patta had acted as accountant for Murat Anik for several years, but had not received the information necessary to complete Anik’s accounts and tax returns on time. For the years 2008/09 to 2010/11 Patta submitted completely blank SA tax returns on behalf of Anik. The 2007/08 tax return was never submitted.
As Patta explained to the tax tribunal (TC05149) he had not received any information from Anik and that, as he could not estimate the figures, he had put in none. He stated that he expected HMRC would investigate, which would “kick start” his client into doing something.
Anik ran a restaurant in Southsea which was not VAT registered, and for which he had not submitted accounts since 2007. He also received rent from a restaurant in Eastleigh, and from a residential property, which he had not declared. Similarly, capital gains arising from the disposal of a residential property and a share in the Eastleigh business were not declared.
HMRC eventually reacted to the blank tax returns as Patta expected; they opened investigations into Anik’s tax affairs for the tax years: 2005/06 to 2012/13. At the conclusion of those investigations HMRC issued penalties for the years 2008/09 to 2012/13, determinations (estimated tax demands) and penalties for the years 2005/06 to 2007/08.
What is surprising is that penalties for three of those years were set aside by the Tribunal. This was partly due to HMRC’s poor handling of the case.
The bigger question is, was it ethical for Patta to submit blank SA tax returns for Anik which he knew were incorrect?
The joint guidance from the accounting and tax bodies, found in the professional conduct in relation to taxation, says it is the taxpayer’s responsibility to submit complete and correct tax returns to the best of his knowledge and belief. However, it also says the tax adviser “should take care not to be associated with the presentation of facts he knows or believes to be incorrect or misleading nor to assert tax positions in a tax return which he considers have no sustainable basis”.
If Patta had followed the professional guidance to the letter he would not have submitted the blank tax returns.
What is your view? Was Patta caught between a rock and a hard place? What can you do to force clients to bring their tax affairs up to date?