Shortage of funds, Professional conduct, HMRC experiments

Two tricky tax problems to consider this week; how a shortage of funds leads to a default surcharge for late paid VAT, and a client who refuses to provide the information necessary to complete his tax returns. We have tips on what to do in both situations. We also have news of two experiments HMRC is conducting on your clients. Are they messing with our minds?

This is an extract from our topical tax tips newsletter dated 16 June 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

PCRT - Guide to professional conduct relating to tax
Tax work can put you in a tricky position at times, as you stand between your client and HMRC. You are paid by the client, but occasionally you must provide some uncomfortable truths about his obligations under tax law. This can place you in an ethical dilemma. 

Fortunately help is at hand in clearly written guidance approved by a joint committee of the professional accountancy and tax bodies: Professional conduct in Relation to Taxation (PCRT). This document was last updated in May 2015 and its worth referring to when in doubt as what to do. 

One fairly common situation is when the client doesn't provide you with the information to complete his accounts or tax return on time. You may be tempted to do what one accountant did, and submit blank tax returns for his client for three consecutive years (see Murat Anik v HMRC). The accountant did this to prompt HMRC to investigate his client and, in his words “kick start” his client into doing something. 

The accountant knew there were self-employed profits and rental income to report, but he didn't have any figures to use as an estimate, so he entered nothing. This was the wrong approach, as by submitting a nil return he was knowingly presenting an incorrect position. The professional conduct guidance says a tax adviser “should take care not to be associated with the presentation of facts he knows or believes to be incorrect or misleading nor to assert tax positions in a tax return which he considers have no sustainable basis.” 
  
The professional conduct guidance also sets out what a tax adviser should do if there is a possible irregularity in the tax return, such as an under declaration (see para 5.9). If the client will not disclose the correct information to HMRC you must cease to act for the client. You would need to advise the client in writing, and HMRC. You may also need to make a money laundering report. 

This is an extract from our topical tax tips newsletter dated 16 June 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>