New client headache - URGENT help.

stefanboro

Hi Everyone,

So I have just been handed a new client (limited company) who has been running from 2007.

His old accountant did the accounts and CT600 for 2007/08. However, his old accountant was jailed for a £11 million tax fraud.

I have now been asked to the accounts and CT600 for 2008/09 which is long over due.

I can do them no problem.

The problem I have is that, whilst I have the closing balance sheet figures for 2007/08 I just can't rely on them.

Am I really going to have to start from 2007? Can I even resubmit a CT600 and accounts going back that far?

The only worry I have about relying on the accounts done previously is the retained earnings figure will dictate whether or not the directors are legally allowed to take dividends.

So, as you can imagine, any guidance would be fantastic!

Monsoon

Wow.

I would be inclined to draw a line under the old accounts and start from the year you have been asked to prepare.

I would only go back and revisit a previously completed year if the client asks you to.

What has the client said about his ex-accountant?

Remember, we all inherit accounts that we may feel are wrong, or not as tax efficient (or overly efficient!) as they could be. We can bring this to our client's attention but if we have been asked to do year 3, and they don't want to pay to re-do years 1 and 2, then we do year 3, from the year 2 opening balances.

stefanboro

Thanks for the reply Monsoon.

My client basically said that his former accountant was a crook but (why even use the word "but"?) saved him money - erm, yes, but by breaking the law. Here is a story on him:

http://www.accountancyage.com/aa/news/1809097/accountant-jailed-gbp11m-tax-dodge

I am personally inclined to draw a line under the first set of accounts and start from scratch. The only minor issue I have, which I feel like I should know the answer to, is whether or not I am allowed to file an abbrivated set of accounts to companies house for the 2008/09 year without also displaying the accounts on a side column for 2007/08

Monsoon

You have to show comparatives, and you use the ones that were submitted.

You can only go back and re-do the last year if the client agrees (not sure if that's what you were saying by starting from scratch).

Remember your MLR responsibilities - if you have a suspicion that the client is deliberately evading tax, you may have to report to SOCA. A genuine mistake does not require a report, and if he agrees he may have paid too little tax and asks you to fix it, that does not require a report.

I would try not to open a can of worms if it was me, but warn the client it may well be in his best interests to get you to re-do the previous years. Don't open the can voluntarily!

On a side note, get him to get some tax investigation insurance -as an ex client of that chap he will be higher risk!

stefanboro

I am glad you have a full appreciation of the precarious situation I am faced with. I do not suspect this potential client of evading tax but I am naturally concerned that the previous returns could be materially incorrect.

I suppose I could, at no extra fee to my potential client, do a brief audit of the prior years accounts to form an opinion on whether or not the set of accounts I have are materially reliable.

From this I just simply proceed in constructing and submitting the 2008/09 accounts.

Honestly, I didn't start with my business until recently and only expected to get local sole traders!

Monsoon

stefanboro wrote: »

I am naturally concerned that the previous returns could be materially incorrect.

I suppose I could, at no extra fee to my potential client, do a brief audit of the prior years accounts to form an opinion on whether or not the set of accounts I have are materially reliable.

I really wouldn't do it, you will be opening a can of worms.

We both know the returns could be wrong but that is the client's lookout, not yours. He knows his ex-acct was a crook. Tell him you can re-do previous years if he wants you to, quote him accordingly, and let him decide.

I cannot stress too much how NOT to do a freebie on looking into it. If he wants a review, charge him properly for it. Seriously, I have learned time and time again that doing favours for people comes back to bite you in the arse. Sure, have a brief look (I mean like 15 mins) and if they are wrong, tell him. Until you do the work, you have no idea whether they are wrong in his favour or HMRC's so there is no MLR consideration there.

I know you want to do a good job and get it right - but take the opening balances you have and do the year you've been asked to do right to the best of your ability, and ONLY open the prior years if the client engages you to do so.

There is another option, which I've just seen. Submitting 0809 is going to trigger some whopping fines and penalties. Can his business sustain it. Does it have reserves to pay any tax that may be due? It may be prudent to close this company and open a new one (that's the whole point of limited liability, if something goes wrong, you can walk away to some extent). I would look at the solvency of the company before I go looking into prior year submissions.

If a new client of mind was looking at accounts this late and the potential problems, I'd be considering phoenixing it. It's a process that has to be done properly though. Equally, the potential liabilities from having a crooked accountant making a mess of things would make me want to close that Co and start a new one.

As an aside, I filed some 0910 accounts at CoHo recently that were rejected. This was because 0708 was outstanding. They cleared my 0910 accounts and said don't bother filing 0708 as he will trigger penalties, just leave a gap on the record.....!!

Edit: if you want a chat about this, I'd be happy to have a chat on the phone over the weekend

MoneySavingBank

Very good reply and interesting read!

Monsoon wrote: »

I really wouldn't do it, you will be opening a can of worms.

We both know the returns could be wrong but that is the client's lookout, not yours. He knows his ex-acct was a crook. Tell him you can re-do previous years if he wants you to, quote him accordingly, and let him decide.

I cannot stress too much how NOT to do a freebie on looking into it. If he wants a review, charge him properly for it. Seriously, I have learned time and time again that doing favours for people comes back to bite you in the arse. Sure, have a brief look (I mean like 15 mins) and if they are wrong, tell him. Until you do the work, you have no idea whether they are wrong in his favour or HMRC's so there is no MLR consideration there.

I know you want to do a good job and get it right - but take the opening balances you have and do the year you've been asked to do right to the best of your ability, and ONLY open the prior years if the client engages you to do so.

There is another option, which I've just seen. Submitting 0809 is going to trigger some whopping fines and penalties. Can his business sustain it. Does it have reserves to pay any tax that may be due? It may be prudent to close this company and open a new one (that's the whole point of limited liability, if something goes wrong, you can walk away to some extent). I would look at the solvency of the company before I go looking into prior year submissions.

If a new client of mind was looking at accounts this late and the potential problems, I'd be considering phoenixing it. It's a process that has to be done properly though. Equally, the potential liabilities from having a crooked accountant making a mess of things would make me want to close that Co and start a new one.

As an aside, I filed some 0910 accounts at CoHo recently that were rejected. This was because 0708 was outstanding. They cleared my 0910 accounts and said don't bother filing 0708 as he will trigger penalties, just leave a gap on the record.....!!

Edit: if you want a chat about this, I'd be happy to have a chat on the phone over the weekend

RAS

Some very good points made by Monsoon. I think there are some serious alarm bells ringing here, unless you are very confident on taking this on I think you would be better leaving well alone. At least I would have thought to quote a significant premium on this and get money up front. An interesting one though, let us know how it all pans out. Good luck.

payrollpro

What else can one say, remember the phrase "no good deed ever goes unpunished".

mc25

interesting

Very interesting thread here. I would definitely tread careful. Good luck with this one.