Taxpayer refused excessive cost deductions
Alistair Jordan [TC07501] lost his appeal against a closure notice for 2013/14, during which he claimed self-employment expenses of £120,000 against income of just £5,000.
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I am assuming the accountant prepared and filed the tax return in question? If so, why on earth did they agree to it? I accept the return is the "taxpayers" and it is down to them to self-assess their income and expenses but surely the accountant must have pointed out that the expenses in question were not allowable. If the client insisted on still claiming them I personally would have said to the client they needed to file the return directly and not had anything to do with it.
I hope the accountant had plenty of file notes showing they told the client what they were doing was wrong.
Yes but anyone can call themselves an accountant cant they - do we know if this accountant was qualified?
If the accountant is correctly named in the report, the practice is based in Gateshead, and has a huge balance sheet deficit. Also reports under FRS102 (probably unnecessarily as it has zero employees), so a few more notes on their accounts at Companies House (which are always filed on deadline day).
A Google search points to a website of a US based business.
All a bit fishy, and I would be surprised if HMRC were not already looking into the firm.
Hi,
I was under the impression that you had to be qualified and, if working for yourself, hold a current practice license. Is this not the case?
I'm training as a bookkeeper and I have to be registered before I can take clients on.
@RT, nope any monkey can call themselves an "accountant" without knowing squat, and unfortunately many do.
I should point out for balance, there are a large number of accountants who are not chartered who do an excellent job at full professional standards, including a number of respondents on here. Its about what you know, not the paperwork on your wall.
Idle curiosity, but I've just had a look at the accounts of Hall Accountancy Ltd. Worth a scan. Net deficiency of assets of £350K as at 31 August 2018.
The net deficiiency of assets is not such a big problem as it seems as the majority of that is a directors loan. Also £200k of goodwill amortised. So if one assumes the practice is still running at the same level then goodwill would be understated.
HOWEVER
With debtors at £3k it looks as if there is no business there or cleints pay up front. Quite how that would come about is very strange.
Based on information the minimum would be a conspiry to defraud, including the accountant. HMRC enquiries into accountant required and most certainly any business involved in any way by client or his family.
I'm afraid being qualified doesn't negate the willingness to get involved in claiming spurious expenses.
On more than one occasion I have, and am aware of colleagues, informing partners of the fact that there are no grounds for an expense to be claimed, or a vital piece of information missed from the return, only to be met with the "It's the client's self assessment at the end of the day."
They seem to think this removes responsibility from them, and the fact that we've told the client it's wrong, somehow gets them off with then submitting the return for the client anyway.
I suspect many would be shocked at the level of "professionalism" within our profession.
Quite right, Lone Wolf. Furthermore, under Sec99 TMA:
"Any person who assists in or induces the making or delivery for any purposes of tax of any return or accounts which he knows to be incorrect shall be liable to a penalty not exceeding £500."
That would include any accountant, partner or even (strictly speaking) anyone acting in accordance with a partner's instructions. Sec99 Notices are, true to say, very rare but whenever they are issued to an accountant/accountancy practice you can bet your bottom dollar that HMRC will scrutinise every single return submitted by said firm/individual!
I sometimes feel that should be in my email footer...along with a link to the ICAS/CIOT PCRT guidelines, money laundering regulations and HMRC guidelines on dishonest conduct by agents.
Those in practice in their own right will know better than me, but I would assume that your PI policy wouldn't ride to your aid if you are hit with fines, and potentially sued by the client, for getting involved in this sort of thing?
But us tax folk are just being difficult. Sigh.
Ironically, it seems that the claim was defended without compromising: "Following extensive correspondence between HMRC and the taxpayer’s accountant Steven Hall, HMRC wrote to Steven Hall on 5 July 2017 stating that it was not satisfied with the evidence supplied to support the claims for the taxpayer’s employment and self-employment expenses".
That would have been an opportunity to rectify any of the expenses claimed. Anyone is entitled to make a mistake, or to rectify something they have identified later.
I wonder what happened to the £120k income in his limited company... is that disallowed too?
DTB27 - but then this accountant wouldn't have been able to charge him almost £6k for next to no actual work. Taking a look at the accounting firms accounts, I think I'd be checking out their Corporation Tax returns too, and then their clients.
"Mr Hall claimed that he had not seen HMRC’s closure notice dated 27 July 2017 until September 2017 as his offices are closed every year in August, December and January due to a combination of factor"
A small accountancy firm closed during December and January every year?! Must have some great clients.
Something seems very odd with this 'accountant' shall we say
If I knew a client had an ongoing enquiry and was due to get a closure notice I would certainly not be on holiday for a whole month, especially for a fee that size!
Usually we have been in constant communication with the inspector by phone, email and letter during the process.
Something feels very wrong with this guy
Well you have to be odd to go to a tribunal....
or alternatively a top tax QC funded by an investment bank and you know you are right....and there £ms at stake
I do love it when HMRC enquiries come up trumps for such blatant Mickey Mouse
behaviour.
Sadly the Revenue didn't go further with disallowing further expenditure and issuing penalty notice[s] for what can only be described as dumb stupidity.
But hopefully Hall's card is marked.
Here are the remarkable extracts from the judgement.
"Lastly Mr Hall explained that Mr Jordan had incurred expenses from ACJ Ltd billed by an invoice dated 31 March 2014 as follows:
“Value adding activities related to Financial Management £40,000.00
Value Adding Inbound Logistics £20,000.00
Value adding activities related to Marketing and Sales £20,000.00
Value adding activities relating to operational service delivery £20,000.00
Value Adding After Sales Care £20,000.00
The invoice indicated a total of 1,200 hours each charged at £100.00 making a total of £120,000.00. No VAT was charged.
Mr Jordan failed to adequately explain to this Tribunal what “Value Adding Services”actually was."
Had the invoice described the services rendered as "Value Deducting Services " he might have succeeded in his claim.