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Get ready for self assessment again!

5th Oct 2009
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The tax return season is about to swing in with a vengeance, and agents are beginning to focus their minds on the season, as the pace of work starts to hot up.

This article will look at a few top tips as you start to knuckle down for the haul ahead!

First there are thoughts about organising clients. This year it is a particularly important issue, as the 2009 returns will be the first to come under the new penalty regime. So if there is an inaccuracy on the return that leads to an underpayment of tax, you and your client will need to demonstrate that he took reasonable care to avoid an inaccuracy to escape a penalty.

It is crucial that firms now appreciate that the burden of proof reverses for the represented client, and whereas in an unrepresented case it is up to the officer to show that the taxpayer has not taken reasonable care, the law states that when a careless inaccuracy is the fault of an adviser there is no penalty if the officer is satisfied that the taxpayer took reasonable care to avoid the inaccuracy. This means that you will need some evidence that your client was careful if there are issues with the return (excluding cases of dishonest inaccuracies).

Taking reasonable care when an agent is preparing the return has some of the characteristics of the normal test of reasonable care – the test is always considered within the taxpayer’s abilities and circumstances, but the guidance does give us some useful help. The Compliance Handbook indicates at CH 84540 that the following would meet the necessary standards where an agent is acting :

  • The taxpayer should appoint an agent who he reasonably believes is competent for the work concerned.
  • The taxpayer should provide the agent with all of the information relevant to the work required, and
  • The taxpayer should check the return before it is submitted.

However, some commentary might be added to these broad principles, as follows :

  • In the case of small businesses and private clients, it is likely that they do not have the ability to judge the technical capabilities of the agent – nor would the guidance expect this. An unsophisticated taxpayer would be entitled to assume that a firm of accountants (rather than the man down the pub) would be competent.
  • Complete or at least reasonable records are a pre-requisite for reasonable care. If your client’s records are a disaster area it is too late now to make any inroads for last year, but you should be making clear that things must improve in future – again within his abilities, but lack of records is not acceptable.
  • Clients who turn up every year in mid January cannot by any stretch of the imagination be said to be taking reasonable care to ensure that there are no mistakes on their return. Putting the agent under such pressure will go no way at all to convince HMRC that all is well. You should start reminding your clients now (if you have not already) about the new penalty regime, and the implications for late records.
  • Checking returns is something that clients should do in any event, and we rely on a signature on a return to indicate that the client believes that the return is correct and complete to the best of their knowledge and belief. But we all know that some clients will sign a return without even reading it, and some even think they can sign the return before it has been completed. So extra thought may be needed here.

So what extra steps might you take this year, in view of the new penalty regime? Well, as described above it is too late now to be dealing with the issue of inadequate records – your focus on records would have to be for the current period and improving things for next year. But setting out very clearly the implications of the new penalty regime in a letter might be a useful step, particularly when you are still chasing records.

If you have not already raised the subject of the new regime and the need for reasonable care, then doing so would be a good first step. You might either include a brief explanation in a letter, or run a seminar in your office for clients, or alternatively point them towards the HMRC e-learning module on the subject. One practitioner I spoke to recently did just that for her clients, and her worst offender has now asked her to undertake bookkeeping services as he considers that he is at risk if he continues to do it himself. Not every business would see this as appropriate or cost effective, but it is heartening that the message got through in this case.

Then we turn to approval of the return. Wading through a tax return is not an easy way for a client to be sure that everything has been declared – there are far too many boxes for the lay client to check. So you might think about implementing a simple approval sheet which will list out the various sources in lay language. The figures on the sheet will agree with the tax return, but the client may not be able to verify the actual figures. He is, however, likely to spot a missing source (maybe one he has omitted to provide details of) or to spot a significantly incorrect figure – again possibly through failure to communicate adequately. This sheet can be signed off as approved – it does not replace signature on the tax return but is a bit of extra evidence that the client (and the agent) has done all in their power to avoid errors – which is all the new system requires.

Just to give you an idea, an example tax return approval sheet is available for you to download, and a two suitable paragraphs on penalties for client letters. You can adapt the approval sheet or use it as a basis for your own approval sheet – and we’ll be adding more free useful tools to help with the tax return season over the coming months.

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