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Accountant submits client’s blank tax returns

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15th Jun 2016
Tax Writer Taxwriter Ltd
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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?

Replies (27)

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By rememberscarborough
15th Jun 2016 13:36

I'm confused - if the client is so bad why not just resign since he's clearly more trouble than he's worth?

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By mwngiol
15th Jun 2016 15:43

Why not just not file anything and let him get fined for non submission?

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Replying to mwngiol:
Glenn Martin
By Glenn Martin
15th Jun 2016 16:32

Did he take it upon himself to do it or did the client authorise the return before it was sent.

It seems an odd set up if client has produced no records for 5 years I cannot see how he is actually an active client.

I am amazed HMRC let it go this long to sort out, I had a client with a debt recovery guy at his door for a few hundred unpaid in early March chasing money owed from January.

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Replying to Glennzy:
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By Ivytaxconsultants
17th Jun 2016 12:21

This tell that Boris is really good accountant but now pieced off and felt misused of course..

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Replying to mwngiol:
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By Ivytaxconsultants
17th Jun 2016 12:19

I don't think as a registered accountant one can do that because that shall be breach of contractual agreement.

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By bernard michael
17th Jun 2016 09:45

The accountant should have resigned rather than play silly buggers

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By Ang
17th Jun 2016 10:08

Accountant should have served notice on the client under the terms of his engagement to sever the business arrangement and advised HMRC that he was no longer acting. I suspect there was more going on in the background than we are aware of

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Replying to Ang:
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By vicpeake
17th Jun 2016 10:17

Definitely, the "Accountant" was wrong in this rather strange route to getting the client to act. I had a similar case a while back and I took the view that if I couldn't get a response for so many years I sent him a letter resigning my position. I wouldn't have played silly buggers like he did. It was also very unprofessional

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Man of Kent
By Kent accountant
17th Jun 2016 10:11

This accountant is as bad as the client. What was the point of keeping him as a 'client' (can't see how he was really?).

Should have disengaged years ago...

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Replying to Kent accountant:
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By Ken of Chester le Street
17th Jun 2016 11:25

Did he receive any fees?
In many small practices the client paid a monthly standing order based on the accountant's estimate of the cost. Did the "accountant" have such an arrangement, and if the client was that negligent he would probably let the standing order run year after year.
Personally I never favoured this arrangement. The only people likely to take it up generated cost over-runs anyway.

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By [email protected]
17th Jun 2016 10:29

Seems clear the accountant ought not to have filed a return he believed to be wrong and in particular should not have taken the initiative in doing so.

The HMRC handling was odd, but it often is! Many years ago, my (then new) client achieved transient notoriety over an illicit sexual relationship and was labelled a 'love-rat' in the tabloids which said he'd sold his story to another tabloid for £100,000. He assured me he'd received nothing and his return went in declaring a very modest income. A few days after the enquiry window closed, I received an enquiry notice. I objected that it was out of time. HMRC wriggled a bit but eventually conceded the point. By this time, the next year's return had gone in, reporting no income whatsoever. The client had lost his job and said he was living off his girlfriend and non-taxable benefits. This time, the enquiry notice came almost immediately and two inspectors travelled up from London to interview the client at my office. The meeting lasted less than half an hour, they declared themselves satisfied and went away again, with the closure notice arriving a few days later. It seemed to me that they were just going through the motions, and it can hardly have been cost effective, though the inspectors doubtless enjoyed their jaunt upcountry..

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By vowlesj
17th Jun 2016 10:40

whilst we will never know if this happened or not, presumably a SOCA report would have achieved a better outcome for the accountant and the same outcome for the client?

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By Taxbod
17th Jun 2016 10:40

What the accountant did was just plain wrong. Presumably, the tax returns had not been approved by the client, so in effect, they were not signed. They were worthless and if the accountant "signed" them on the client's behalf, he had in effect forged an utterable instrument ( I think was the term used in the olden days), so he laid himself open to prosecution. Which brings me back to my first sentence.

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By Ivytaxconsultants
17th Jun 2016 10:42

The Accountant has done very wrong. He should have gotten rid of Anik a long time ago. I being an accountant in practice for over 20 years can very well associate to Boris's sentiment.

My approach is that I kick these small business and particularly restaurant owners out of my practice. They are the biggest petty fraud-starts in the World. They will stamp down food price by using cheapest ingredients and by paying less then 'minimum wages' to their staffs, where all have to top up their earning by milking benefits.

Yes I am the poorest accountant but I sleep well at night.
London is a hub for illegitimate plunder to make white. You may read Guardian's investigation of property ownership in London and few weeks ago! Government inspires it. Now the Exchequer includes gambles and prostitution to prop GDP figures.

I can guess why Boris felt do disgusted and acted in haste. His client must have been claiming various benefits including housing benefit, which has made Anik wealthier than Boris. Here Boris being an educated person pays tax for scums like Anik to claim through benefit system, where Boris found himself as a 'facilitator'. In fact he found himself assisting this scum to defraud the HMRC.

But the trouble is that if the HMRC executives had any interest to do work what they are paid to do then the investigation would have been instigated long ago without Boris having to take this silly step.

I think Boris is the best and has take the responsibility to set a precedent and engaged in 'nation building' displaying an endeavor in rooting out weeds. I salute him.

Never forget Enron in 1999 what Arthur Anderson has pulled then Robert Maxwell's plunder of 'Daily Mirror' pension fund (over half a billion), then Philip Green's over half billion Pension fund mess yet paying his Malta wife tax free 1.25 billion. The list goes on.

Only the trouble is that poor Boris now shall now start losing his client base. Because every single f..ing one of us is thief. Government steps in when one gets obvious or else all know about it and and yet do nothing. Because they fear of losing their job and may default on their ever-increasing mortgage payment.

You are very true saying the HMRC's handling case was weak and disgrace. I faced it time and time again. They send counselors very ill prepared. They talk like pupate and prevaricate in the courtroom. The most silly thing is the lower Tribunal bench has no discretion.
This is f...ing madness....

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By cliveth
17th Jun 2016 10:44

The accountant should not have taken this action. The client authorises the return, not the agent. An agent should not submit a return until such time as he/she has the client's permission to do so (and that the client has confirmed that the return is complete and correct). In this case the client will presumably say to HMRC that they did not authorise the returns and therefore did not declare nil income. As previous replies state, the accountant should simply have resigned, but even then there would probably be an obligation to report the client in accordance with their relevant professional body's rules.

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By Casterbridge Hardy LLP
17th Jun 2016 10:53

There must be something wrong today - I have not (yet) seen any comment as to whether or not Boris is qualified!

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By Ammie
17th Jun 2016 11:10

A heat of the moment reaction and very unprofessional.
If the relationship is that strained, resign.
If, for some strange reason, the relationship continued he should have written to him in good time to advised that no return will no completed and submitted without his useful input because of the lack of information to be able to do so. Sufficient time will enable the client to act and be responsible for his own shortcomings. Too little time and the client could accuse the accountant.
The letter of engagement should clearly explain that the work caried out is reliant and based on the information provided. No information does not entitle that flippant reaction.
The accountant needs to be careful as he may well become professionally vulnerable if the client suffers as a result of the submission. Some awkward clients have a habit of turning and biting back when you least expect.
Don't waste your time, resign and move on.

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By Ken of Chester le Street
17th Jun 2016 11:17

I used to do the tax returns for a relative until I retired, after which he did them himself. He became seriously ill at the beginning of the year, and could not handle his own affairs. I discovered I still had a 64-8 authority, so in January I contacted HMRC to ask them to waive penalties in advance. 2014-2015 had not yet been filed. A human being in HMRC (they still have some) gave me details of past returns, while waiving the penalties. A chronic deadline-hugger, he had filed 2012-2013 on 31/01/2014. In his haste , he had claimed tax relief for a stakeholder pension, but forgot the employment pages, which should have put him into higher rate. HMRC had calculated the liability (nil), and taken no further action. With a little help from his employers , and some reluctant help from his pension providers, I filed an amended return. He had taken out more pensions, so the liability was small, and they wrote it off.
The point of all this is to say that a tax return filed with no income was accepted, presumably without human intervention. Blank tax returns do not automatically provoke enquiries.

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By patrishas
17th Jun 2016 11:17

Was the Accountant actually being paid by this client??

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By Ken of Chester le Street
17th Jun 2016 11:18

I used to do the tax returns for a relative until I retired, after which he did them himself. He became seriously ill at the beginning of the year, and could not handle his own affairs. I discovered I still had a 64-8 authority, so in January I contacted HMRC to ask them to waive penalties in advance. 2014-2015 had not yet been filed. A human being in HMRC (they still have some) gave me details of past returns, while waiving the penalties. A chronic deadline-hugger, he had filed 2012-2013 on 31/01/2014. In his haste , he had claimed tax relief for a stakeholder pension, but forgot the employment pages, which should have put him into higher rate. HMRC had calculated the liability (nil), and taken no further action. With a little help from his employers , and some reluctant help from his pension providers, I filed an amended return. He had taken out more pensions, so the liability was small, and they wrote it off.
The point of all this is to say that a tax return filed with no income was accepted, presumably without human intervention. Blank tax returns do not automatically provoke enquiries.

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Replying to Ken of Chester le Street:
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By johnjenkins
17th Jun 2016 12:06

blank tax returns also can trigger a " you don't have to submit any more tax returns unless your circumstances change" letter. Maybe that was the idea.

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By Ian McTernan CTA
17th Jun 2016 11:58

Terrible action by the 'accountant' and if he is a member of any Body they should haul him up for disciplinary action and/or explusion.

The client is equally to blame for exploiting the accountant's weakness.

It's not worth keeping clients like this.

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7om
By Tom 7000
17th Jun 2016 16:06

NO DONT DO THIS
Because if he didnt send anything in then when the fines turn up the clients normally come running saying can you stop them...whic his the whole point of them....and then the correct figures go in.

Also HMRC could say you colluded with him to report zero income and then you end up in court...and jail...and your money is confiscated under POCA...and your wife divorces you and moves in with the Barrister...and you get attacked in jail...and when you get out you have no where to live and have picked up a class a drug habit in jail and then die penniless and hungry in the gutter...

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By MartinLevin
17th Jun 2016 18:35

I am amused at how many in the profession hang on to each and every "client". I attended a marketing course many years ago. We were encouraged to classify our clients i to 3 categories: A,B and C. [The Good, slow, and the time-wasters]. I got rid of my "C" class clients years ago. I haven't looked back.

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By SimonP
18th Jun 2016 13:36

If the client has not confirmed agreement to the returns then nothing should be filed. Totally unprofessional, in my opinion.

I had a client last year who just dragged his feet on signing the return, despite constant reminders from me that he would be penalised if the return was late.

Yes, I could have filed without waiting for him but then again, it's not MY tax return, it's the CLIENT'S and he has to agree that it is correct before it can be filed.

Besides which, now he's been fined, he'll be a bit quicker this year to avoid another penalty.

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By petestar1969
20th Jun 2016 10:17

Why not just sack the client?

Its not the agent's responsibility to file tax returns. Its called "Self"- assessment for a reason.

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By AndrewV12
17th Nov 2016 15:01

I think Boris should have bailed out, and cease to have that client, we will never know about fees.

Its not an easy one, what to do with problem clients.

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