Accountant fees Versus HMRC penalties

January 16, 2019 Off By Frauke

In 2013, we accepted a new client. He was behind in submitting his tax returns, as he told me, it was because his accountant increased the annual fees from £300 a year to £650 a year and he felt that it was too much to pay. So he decided to have a go at doing it himself, but for whatever reason, in the end he didn’t. So via a friend, who has been a client for a long time, he asked us to do it for him to get him back up to date.

We agreed to do this and his 2 other “late returns” for £400.00 each and got on with it.  I will say, it took a lot longer than I expected, simply because his records were not the best, and it would take 3 or 4 e-mails before he would reply to any questions, and then the answers where always incomplete. In the end it took nearly 3 months to get to a point when we could submit the last of his tax returns. Even just getting this return approved took over 2 weeks, and 3 e-mails. So of course when we finally submitted final “late tax return”, we had done a lot more than £1,200.00 worth of work for this client. But we had agreed to do it for £400.00 per tax return so that is what we charged.

When HMRC processed his last late tax return, his final tax bill was £952.82 which was not too bad. We had asked him to pay money to the tax office on account, to minimize the potential interest, plus surcharges. Eventually he did do this after a few months, and before we submitted the tax return. In the end he had to pay a penalty of £47.00 (5% of the tax due) because the payment for the tax was more than 30 days late. But no other surcharges.

However for submitting the final tax return late he was fined £900.00, for being more than 3 months late, plus £300.00 for also being 6 months late.

Total fines came to £1,247.00 for just the 2011-12 tax return and this did not include the £14.09 interest charged on the £952.82 up to when HMRC received the payment on account.  The additional costs for all the late returns came to more than £3,300

He was very unhappy when I told him we would have to charge more for his next tax return, and I thought he will not ask me to do it, especially as I wanted to get it done now and not leave it until the last minute. He then went away on holiday and told me he would discuss it when he returned.  I did wonder what kind of holiday he would have been able to have if he didn’t have to pay the extra £1,261.09 in addition to the tax. I did make suggestions on how it he could make it better ongoing and wondered if he would do any of them. The suggestions were not to reduce the potential costs, it’s just to stop them spiraling out of control.

Was I wrong in thinking; it would have been cheaper to pay the extra accountancy fees in the first place?

After ignoring me for a few months, he eventually asked me to do his next tax return.  I agreed on condition he started to pay a monthly contribution towards his annual fees which I increased more in line with the amount of time I now knew his tax return would take me.   However he did not start making any payments, so after a month, I sent him an invoice for the projected fees, and asked him to pay it in advance so I could start working on his accounts for his tax return.  His response was to question the amount and date of each payment he had made for the past tax returns against each of the invoices which had been previously issued, to confirm that he had not over paid any of them.  Once I had located all the records, so I could provide all the dates, copies and details, he agreed to pay this invoice in full.

2 days before the deadline he signed the tax return and I submitted it to HMRC on his behalf.  At this point I sadly decided I did not need the stress of being this clients accountant and returned all the records I held to the client, and wrote my first ever “disengagement” letter.