Expenses

[JulianHobbs]

Hello,
Question for other accountants out there.
I have an IT contractor who has asked me to do some accounts for him. I've looked at his file, and whilst he's certainly within IR35, he has been a little, how shall we say, liberal with the expenses.
There's a few business 'conferences' etc in the pack that really are just jollies abroad which could lead to the taxman falling off his chair in hysterics when he see them.
He is reluctant to change any of the expenses leading me to be a little nervous. Can I just prepare accounts and tax return for him and say over to you son, and good luck with the taxman if he asks for backup. Or do I have to decline?

 

[MyAccountantOnline]

Personally if it were me I'd decline.

I'd doubt very much if the fee would compensate any future hasssle.

If a client isnt prepared to take your professional advice thats their choice and I'd let someone else take the hassle.

They'll be the first ones in line for the PI claim when HMRC are enquiring into the Returns!

 

[GaryMc]

As long as you cover your back, there should be no reason not to take it on.

When you send the returns, just send a separate note which lists the 'dodgy' items and totals the potential extra tax payable if HMRC decide to investigate (and strongly recommend that the return be amended now rather than potentially incurring interest and penalties)

 

[MyAccountantOnline]

As long as you cover your back, there should be no reason not to take it on.

When you send the returns, just send a separate note which lists the 'dodgy' items and totals the potential extra tax payable if HMRC decide to investigate (and strongly recommend that the return be amended now rather than potentially incurring interest and penalties)

So do you suggest the incorrect tax return claiming expenses which are not allowable is sent to HMRC??

 

[GaryMc]

It is Self Assessment - if the client believes that they are valid business expenses then yes. If HMRC do enquire, you point to your list and say 'I did warn you'

 

[MyAccountantOnline]

It is Self Assessment - if the client believes that they are valid business expenses then yes. If HMRC do enquire, you point to your list and say 'I did warn you'

Surely this must be April 1st!!

Only a few minor problems with this approach....words such as Money laundering and tax evasion seem to spring to mind for some strange reason......

 

[elaine@cheapaccounting]

Are you a member of an institute?

Check out your professional ethics.

For me - I would not do it. There are plenty who would so he / she can go to tone of those. There are also plenty of clients who will take the advice offered and work with you - so no need to get hassle from others really.

Ones like this always have a habit of coming back to bite you later.

 

[GaryMc]

Money laundering and tax evasion - fairly strong don't you think?

Member of an institute and experience at Big 4 level - as long as you tell the client about the risks, what is the issue?

Case in point - we had a client who always claimed depreciation in stock as an expense. We told him each year that it was still being debated in court and that HMRC would not like the claim but the client (the one who pays us) wanted to claim it. We put a paragraph in each year telling him what the risk was, what the likely consequences were and that it was highly likely that there would be an enquiry.

In doing so, we fulfillied our role as tax return preparers and business advisors.

 

[DVWooly]

i would explain to the client that the expenses are not legitimate in your eyes so are unlikely to be in the eyes of the Inland Revenue.

HOWEVER, i do notice that you write "There's a few business 'conferences' etc in the pack that really are just jollies abroad."

So what you are saying it is your opinion that these are jollies and not valid expenses.

If they can prove to you they are valid expneses, i.e a conference did actually exist and they have a valid receipt, then i dont see a problem including them.

 

[MyAccountantOnline]

If Julian were to complete a tax return which he knew to be incorrect claiming expenses which he knew were not allowable for tax purposes then yes I do think their is a Money Laundering issue and tax evasion. How else do you describe it??

My primary professional body rules, which I suspect are pretty much the same for all professional bodies are pretty clear on this sort of scenario -

Any act or omission directed to or resulting in the evasion or attempted evasion of tax may be the subject of criminal charges under both tax law and money laundering legislation. Tax evasion may relate to direct tax such as income tax or corporation tax, or indirect tax such as a tax on goods and services (VAT in the United Kingdom). The proceeds of such offences, like any other crime, will be subject to the money laundering legislation. Members who suspect or are aware of tax evasion activities by a client may themselves commit an offence if they do not report their suspicions to the appropriate money laundering authority (in addition to any notification to the tax authorities). Members should refer to section 3.8, Money laundering, for further guidance.

 

[elaine@cheapaccounting]

I am sure the same (or v similar) is included in the ICAEW professional ethics manual.

 

[RAL]

Money laundering and tax evasion - fairly strong don't you think?

Member of an institute and experience at Big 4 level - as long as you tell the client about the risks, what is the issue?

Case in point - we had a client who always claimed depreciation in stock as an expense. We told him each year that it was still being debated in court and that HMRC would not like the claim but the client (the one who pays us) wanted to claim it. We put a paragraph in each year telling him what the risk was, what the likely consequences were and that it was highly likely that there would be an enquiry.

In doing so, we fulfillied our role as tax return preparers and business advisors.

Nicola already mentioned tax evasion and guidelines for ACCA members.

It is a crime under The Proceeds of Crime Act 2002, "Money Lanundering - concealling criminal property i.e. concealing or disguising its nature, source, location, ownership etc. or removing it from uk"

Definition of "Criminal Property" is very widely defined as property which constitutes or the alleged offender knows or suspects constitutes, a person's benefit from criminal conduct. It includes proceeds from tax evasion or criminal cartels, benefits obtained through bribery and corruption and benefits arising from a failure to comply with legal requirement.

Tax saved would be a criminal property and if accountant or tax advisor do not report this under AMLR it would be offence which carries 14 years' imprisonment and unlimited fine.

To Julian

I will go with Nicola and Elaine. Check with you professional body, check your obligation under AMLR. If you in doubt just decline, cover your back.

 

[GillespieBS]

I've seen so many accountants make assumptions on their clients and jump to the wrong conclusions. If the client says that it is a conference, then why would you scream tax evader and money launder! Refuse to act for them and presumably not give professional clearance.

The OP only said he suspected the expenses weren't legit. I would think carefully before assuming the worst. Ask them if it is a business expense (wholly, exclusively, necessarilly...), if they say yes then how far will you go to prove the client wrong? In my book the customer is always right.

If it turns out that HMRC disagrees, how soon is it before action is taken against the accountant? We've seen banks go bust and ponzi schemes run for years and the auditors are staying in business (bar a couple!). I'm sure the accountants can protect themselves against a bit of subsistence and entertaining claims!

 

[RAL]

I've seen so many accountants make assumptions on their clients and jump to the wrong conclusions. If the client says that it is a conference, then why would you scream tax evader and money launder! Refuse to act for them and presumably not give professional clearance.

Here is a reason why. CCAB guide lines on money laundering

The OP only said he suspected the expenses weren't legit. I would think carefully before assuming the worst. Ask them if it is a business expense (wholly, exclusively, necessarilly...), if they say yes then how far will you go to prove the client wrong? In my book the customer is always right.

Agree that customer is always right but not when the customer ask you to break the law

If it turns out that HMRC disagrees, how soon is it before action is taken against the accountant? We've seen banks go bust and ponzi schemes run for years and the auditors are staying in business (bar a couple!).

They would have covered their back. I can not find a link, but I remember that a MLRO was fined for not following the procedure and he had to pay from his own pocket. Not mentioned that there would have been disciplinary action against by his professinal body (this would have cost him fortune). He may lose his licence.

I'm sure the accountants can protect themselves against a bit of subsistence and entertaining claims!

Well, I would just like to mentioned that there are new penalty and power regime are in effect from 01/04/09, you may have read a new paper or may have seen a post by Zeno.

 

[elaine@cheapaccounting]

I've seen so many accountants make assumptions on their clients and jump to the wrong conclusions. If the client says that it is a conference, then why would you scream tax evader and money launder! Refuse to act for them and presumably not give professional clearance.

The OP only said he suspected the expenses weren't legit. I would think carefully before assuming the worst. Ask them if it is a business expense (wholly, exclusively, necessarilly...), if they say yes then how far will you go to prove the client wrong? In my book the customer is always right.

If it turns out that HMRC disagrees, how soon is it before action is taken against the accountant? We've seen banks go bust and ponzi schemes run for years and the auditors are staying in business (bar a couple!). I'm sure the accountants can protect themselves against a bit of subsistence and entertaining claims!

I hear what you are saying but we do have clear rules given by our relative institutes.

We spent an awful long time studying for our qualification, building our experience, reputation, business etc.

Obviously we would never turn clients away on a whim but you do tend to get a 'nose' for these things and some times things just stink to much to go new.

Now obviously I do not now all of the details of the OPs situation but I for one (and I know of others on here) have turned away clients where 'things are just not right'.

Yes it is a very rare occurence for this to happen but I would do it again if the need arises because I am not going to chuck away 20 + years (showing my age!) of hard work

It is not just an HMRC enquiry to worry about - we can be sued, loss our qualification, our business etc

If that makes me wrong well so be it.

Of course not all accountants are members of institutes and regulated - so there is always someone around to represent such clients. So they will not lose out.