I had an email earlier this week, from a chap living in Australia. He had received a letter from HMRC saying that they knew he had let his property out, and that he might like to consider making a disclosure under the HMRC Let Property Campaign. For the purpose of this article we’ll name him Dennis (did I mention I’m a cricket nut?). So, Dennis starting looking for a Let Property Campaign adviser.
Now before we go any further, for those of you who read my blogs, you will be more than familiar with the various articles that I’ve written about the Let Property Campaign already. Rest assured, this isn’t another story of what to do and how to get straight with HMRC, instead it’s a story about accountants who don’t know what they’re doing……… and to beware of the cheap fee quote.
Back to the email. Dennis explained that he’d rented out a property for a few years when he was in the UK. He had been in PAYE employment during this period and hadn’t realised that he needed to tell the tax office about his rental income. He then sold the house and emigrated to Australia a few years ago. He went on to ask me what was required in terms of getting straight with HMRC, whether I could help him, and what it would cost. I emailed him back with a detailed explanation of what needs to be done in terms of the campaign disclosure, rental accounts, establishing taxable income in the relevant years, together with a review of the possible capital gains position on the disposal of the property. I also quoted an all-inclusive fee for dealing with everything from start to finish.
The following day I received a reply from Dennis asking if I might be able to reduce my fee quote because another agent had been in touch quoting a fee that was substantially lower. Dennis made it perfectly clear that he would prefer to engage my firm to help because we had taken the time and effort to explain everything in detail, but the difference in fees was some £500. He asked, not unreasonably, if we could meet somewhere in the middle. He also attached the other agent’s fee quote email which explained that the agent would complete and submit tax returns for each year. There was no mention of the capital gains issue (which will probably result in no additional tax but needs to be checked), nor was there any mention of the campaign disclosure.
And so to the point of this blog.
There are many accountants and tax professionals out there who are great at their job and provide a good professional service to clients. All good accountants will have their specialist areas, but more importantly they will acknowledge that some areas of tax or accounting are beyond them. For my part, I have little more than a basic understanding of VAT and, consequently, I would never seek to offer professional advice or take a VAT related assignment because I do not know enough about the subject. There are many VAT experts out there who would do a far better job than I ever could.
Sadly though, this doesn’t seem to extend to all accountants, and in particular it doesn’t extend to the finer points of tax, where from my experience, there are a lot of people calling themselves accountants who think they understand about tax but clearly don’t.
I have to say this is a pet hate for me. People mainly go to accountants because they don’t fully understand about tax and want to pay a professional to take care of everything. They are willing to pay a fee and just need the accountant to be honest in his level of understanding and service. It’s the same principle for me when it comes to DIY at home. I can paint walls and hang wallpaper, but anything to do with water or electricity is to be avoided at all costs. Many years ago I tried to fix the plumbing and flooded the house. A few weeks after I tried to wire up some new lights and duly electrocuted myself whilst perched on a ladder. Now, I pay for qualified plumbers and electricians because I cannot be trusted to do the work myself. I look for qualified people and I am happy to pay their fee. I expect them to do the job correctly and the house to be safe after they have left.
Then of course there’s the whole issue of trying to save money, and let’s be honest, we all do this to some extent. But how often have we bought the cheaper paint at the local DIY store only to find it has the gumption of water and requires 5 coats. How often have we bought the cheaper garden furniture only to see it collapse within weeks. The best story I have is a dear friend of mine who was a ducker and diver all his life, and who inherited a substantial amount of money. He went to an exclusive BMW garage to buy a top of the range model and couldn’t help himself asking if they did a discount for cash. My friend told me that the very well dressed salesman had smiled at him like a Cheshire cat and explained, in a mildly condescending way, that this was a BMW dealership and they had no need to do deals, nor would they take £45,000 in cash. My friend told me that he didn’t even particularly like the car but he bought it out of embarrassment!
In this particular case, the other accountant had proposed a course of action that would have ended up with the client paying late filing and late payment penalties, which would not be payable using the disclosure facility. It is also pretty much guaranteed that HMRC would enquire into these very old tax returns to ask the obvious question of why it took so long to make a return of the rental income. In these circumstances, a HMRC enquiry is to be avoided if at all possible, as you will be faced with some very searching questions from the Inspector about what expenses have been claimed, how you calculated the income, and of course what penalties should be charged.
I should be clear at this point, that disclosure facility doesn’t exempt the user from paying a penalty, quite the opposite. In fact, it is a part of the process for having the disclosure accepted. The difference is that the agent and client effectively decide on the behaviour behind the omission, or the failure, and then self-assess the penalty chargeable, subject to the tax rules of course. Basically it is possible to reduce penalties to the legal minimum taking into account the mitigations that are available.
I sent an email to Dennis explaining that I couldn’t lower my fee quote, simply because I knew how much time it would take to deal with everything correctly. I also suggested that he check that the other agent had a decent grasp of the different areas of HMRC’s penalty regime and to see why he preferred not to use the disclosure facility. Dennis emailed me back within the hour to say that the agent had backtracked on most everything he said and was now proposing an additional £300 on top of what he originally quoted. Dennis told me he no longer had faith in the other person (I refuse to call him an accountant any longer) and wanted to engage our firm instead.
I am glad Dennis changed his mind, not only because we will do a great job in getting him clear with HMRC, but I’m glad he didn’t go with the cheaper option and end up paying more tax and penalties than he would have saved in fees. Sometimes, as they say, you pay for what you get……..
By Neill Staff, Partner