HELP! Previous accountant nightmare!!!

goodwithnumbersFMAAT

Hi Everyone,

Im a new FMAAT licensed accountant (long story but I have worked in accy practices since 2001 and decided to 'go it alone' in December).

I have taken on a new Ltd Co client, whose prev accountant they could never get hold of - and neither can i!

Upon inspection of the accounts (which we finally got from him after the clients went to his offices and demanded them) I have found the following:

Directors salaries of £8164 each (2 directors) posted in P&L - even though no PAYE scheme was ever set up!
No opening Trade Debtors - even though (from their records) there were £8700

Please could someone advise me on what I should do next.

The payroll issue - do I need to do something about this or leave as is as the prev acct signed the accounts?

The Trade Debtors issue - do i need to re-do previous years accounts and submit amended versions plus CT600, or PYA, or can this be resolved by adjusting in sales in current year accounts?

I really appreciate any advice - i'ts quite daunting going it alone and suddenly having nobody to ask when things like this arise.

Thanks,

reader

Firstly, congratulations on going it alone. I wish I had the guts. How is it going?

Should HMRC investigate they would expect the following:

1) Ament last years accts for the trade debtor. This sale should be taxed at 20% not 19%.

2) Register the PAYE scheme for last tax year and submit the £8,164 salary.

At least then going forwards you know that you haven't made any mistakes and have done your best. It's probably best not to be professionally negligent and make additional mistakes.

There may be some PAYE penalties for the PAYE scheme registration and late FPS'.

MarieNoelle

Re PAYE we need to know when the payments started. Look at bank statements/ accounting entries. Are they regular monthly payments or is there still time to register an annual scheme?
Otherwise as @reader said there would be late filing penalties to calculate.

Have self assessment tax returns been filed with these amounts? If so where were they declared (probably not in the employment pages since you would need a scheme reference number)?


Re missing sales invoice.
I had exactly the same dilemma, however it transpired that the missing invoice was raised at the end of the period and was deferred income. So although it should have appeared as a debtor in the accounts the Tax position wasn't affected. So maybe try and establish the facts?

goodwithnumbersFMAAT

Thank you for your replies.

The accountant hasn't been very helpful at all. My clients were paying for what they thought payroll to be done monthly plus accounts ct600 nd personal tax returns.

After constant attempts to obtain the PAYE red number from the old acct he admitted he never set one up!

I set one up for them in January and have put through wages for 17/18.

He was supposed to submit their 16/17 stars but until I obtained access to their govt gateway accounts a few weeks is ago we found he never submitted them so they both got fines. Even though he billed them for it!

After we were told the prev acct hadn't submitted any wages for the directors we looked at the drawings made by the directors in 16/17 and included all this as dividends o the 16/17 stars. Obviously now I have the full set of accounts I can see that there should have also been wages on there for each of them.

It's such a mess and the clients deserved better. They didn't get a service they thought they were paying for and it seems unfair they will get penalised for the late penalties when it wasn't their fault. As far as I can see the prev acct isn't qualified or registered with any body so unsure who they could even complain to.

CSan89

I would have thought they could take a civil case out on him for breach of contract. At least they may get some money back.

MarieNoelle

Client can sue the previous accountants for negligence.
I would try and see whether penalties can be reduced if the client can show he was relying on the adviser (I think there has been a recent case where the courts ruled in favour of the tax payer and held that he had a reasonable excuse relying on his accountant)

Edit to add: does the client have the engagement letter from previous accountants and what does it say?

reader

Ideally, the old accountant should pay any penalties and your fees if you have to do extra work.

If you do a good job with your new clients hopefully they send you some referrals.

I hate to say this but try to point out the mistakes the old accountant made for a number of reasons:

1) So the directors know what is going on with their company
2) They can make a decision about whether or not they want to take legal action
3) So later on if they try to take legal action against you, at least you can say that the director's were well aware of what hadn't been done and the penalties involved
4) So the director's know that you are good thorough job, and are working hard to put everything right

goodwithnumbersFMAAT

Thanks again guys!

Yes 'reader' they are very happy with what i've done for them so far, so fingers crossed should get some referrals!

I have spoken to CIPP about this and am going to speak to HMRC about what should be done and ask if any penalties will be involved before I speak to the client.

Still unsure whether I should amend the previous set of accounts for the trade debtors problem?

Thanks

reader

Why would you knowingly account for the invoice in the wrong set of accounts? And pay the wrong corporation tax (i.e. 19% rather than 20%)?

Why don't you want to do the amended accounts given that you know doing amended accounts is the correct course of action?

Calling CIPP is a great idea.

goodwithnumbersFMAAT

I have just spoken with the AAT helpline and they have advised me that I have two options

1 under S454 of the Companies act the directors can choose to file amended accounts if they are defective (ie not compliant with Co Act) and that it's judgmental as potentially may not have to amend


2 if the errors are material and not considered to be fundamentally incorrect, under FRS 105 S8 correct the material prior period errors and restate the previous figures with disclosure in the accounts

reader

Again, another good idea to call AAT.

Although from an accounting/companies house point of view you are correct, from a tax point of view you are wrong.

There has been an underpayment of tax and therefore interest and potentially penalties are due.

reader

Please find some links below about late paid corporation tax (because sales are being declared in the next period and therefore being paid late) and penalties for incorrect corporation tax return (because the sale is being taxed at 19% rather than 20%):

https://www.gov.uk/guidance/corporation-tax-interest-charges

https://www.gov.uk/guidance/corporation-tax-penalties

goodwithnumbersFMAAT

Thanks for this :-)