Error on tax return - sought advice they made things worse!

an1179

Hi

My oh is retired.

We have an income which he decalres from rental of property also we have a very smalll caravan site. After being nagged by me my OH phoned the tax office who confirmed to him that he should declare the income as rent on his tax return. The tax return was a short version. He did not need to register as self-employed

2006 - 2007 rental less expenses we declared a loss of £7,600

2007 - 2008 I forgot to carry the loss over and we declared a profit of £250 instead of a loss of £7,350

I realised this in October so in November oh phoned the tax office and wrote a letter confirming this. ( I phoned child tax credit )

The tax office sent a full tax form for him to complete.

I have been nagging OH to get financial advice from an accountant, finally oh conceeded, we sought advice from a recommended accountand (not sure they have a qualification) anyway. She came to the house

In hindsight I don;'t think she listened to a word we said.

According to her we can claim 25% of gas electricity water from our private dwelling because we use a room as an office. I thought it was something like £2 a week something to do with tax liabilities when we sold - she brushed that under the carpet

We can claim the cost of the car lease, petrol and any other motoring expenses - not 40p per mile as we have been. I would guess that we use the car for 15% business and 85% personal.

She was saying that oh should invoice the charge for any labour jobs that are done by us as we were not taking a wage, we should set up excel account for 3 businesses 1 rental 2 caravanning 3 groundworks. Groundworks would then invoice all labour charges to 1 and 2. But we could not see the point in that as a charge incurrs an income? The both surely cancel each other out and only cause more work

Anyway she took away the tax form. Which oh could have completed. She registered to complete on line. We have not had the code through yet from the tax office to get access.

Anyway yesterday she rolls up on the drive and presents oh with an envelope containing

1. an invoice for £250 for setting up tax return and submitting tax return
Itemising tax return for future use and advising on spreadsheet computation and advice on business ventures in general.

2. What looks like an HMRC tax return calculation where she has declared profit from self employment of £250 - 2 errors

I phoned her as soon as we sussed the problem and left a message on her ansa phone . I also e-mailed her. We were out for the rest of the day, we have not had a response yet to phone or emal.


My OH hit the roof we have a bill and absolutely nothing to show for it. I'm more stressed than I was before. I have no confidence in this person and we are £250 down:eek:

Well thats it. I feel better having got it down in black and white

Any advice, suggestions, comments I will be gratefully digested.

Thanks for l@@king

fengirl_2

If you are not happy with what this lady has done (and I have to say it doesnt look very high quality), then refuse to pay her. Find an accountant through personal recommendation, or else go and see two or three and go with the one you have confidence in. Did you sign the tax return? If not, then dont do so until you take further advice. If you did sign it and it has been submitted, you will need to formally amend it and a good accountant will help you.
I agree that all the cross-invoicing is pointless as it still produces a tax liability, but an on the spot accountant could unravel this more easily as we dont have the full picture.
Regarding use of car, you can either include in your accounts 40p per mile, or the actual cost of running the vehicle, reduced to the actual busines sproportion. Use of a room at home - you include the actual proportion of the running costs of the room. So, if you have 3 beds and 2 recepts and you use one bedroom as an office, you include one fifth of your utility bills in your accounts. The £2 pw you are thinking of relates to PAYE taxpayers.

Pennywise

To be honest, I think the advice given by the accountant is better than that given by HMRC.

For a start, there seems to be three businesses ongoing, a property rental (which isn't classed as a true business for tax), a caravan site, which is almost certainly a business, and groundworks, again almost certainly a business.

Then you have to think about who is running each business. Is everything in your OH's sole name and nothing in yours? Do you not do anything for the business yourself? Are they all sole traders or is their a partnership in there somewhere.

There are different tax rules for different types of income. Different expenses can be claimed according to the type of income. Some expenses are claimable against trading income other expenses have to be carried forward to be set against future capital profits when the asset is sold, some expenses are never allowable. A loss on property rental income can only be set against future profits from property rental. You can't just bung everything in one pot and say the tax will be the same - the chances are it won't be. In particular, caravan sites have some pecularities - is it purely letting a square of land with no other services or do you provide other services as well? Do you own the caravans and rent them out, or is it just a site where caravan owners bring their own to stay? Do you provide hook-up power and sanitation? All these factors can help distinguish between the caravan site being just a property income (not a business) or a business (i.e. true self employment).

Re use of home, the £2 per week is for employees - the self employed claim can be far more generous. Your accountant seems to be on the right tracks here.

Re car, again the 40p per mile is mainly for employees. It can be claimed by self employed, but a higher claim can usually be made by taking a proportion of the actual costs especially if you are leasing a relatively new car. Again, your accountant is on the right tracks.

Turning to your original loss of £7,600. What expenses made up this loss. If there was any element of improvement to the property, it isn't allowable. If you had to undertake repairs or improvements before you started to rent it out, it isn't allowable. Only ongoing repairs and maintenance are allowable. So if you bought a run down house, did it up with new kitchen, bathroom, double glazing etc., and then started to rent it out, little if any of those costs constitute valid expenses to be set against future income - they are all carried forward to set against capital profits on sale.

£250 to get things straight etc isn't excessive and like I say, I think she's closer to being right than you are. It is also unreasonable for you to expect her to answer her phone or email immediately - she may well be in a meeting with another client - you aren't her only client you know. Sorry to sound a little harsh, but I think you are being very unkind to your accountant. She is the professional and does this kind of thing day in and day out - you seem to have phoned the HMRC helpline (staffed by poorly trained call centre workers with a long history of bad advice) and spent a little time on the internet. I'm not saying that she is definately right in every aspect - without knowing the full facts that is impossible to say - but I don't think you are being fair to be so critical.

Tarasam

"you seem to have phoned the HMRC helpline (staffed by poorly trained call centre workers with a long history of bad advice) and spent a little time on the internet."
Not all HMRC staff are like this.
Its no wonder we get abused over the phone when rubbish like this is posted on a web-site, maybe she got a newly trained member of staff, normal advisors are not meant to answer qu's re Land & Property so she should have been passed to a technical advisor who are well trained, experienced officers.

Oh and to add not ALL accountants are wonderful, some are rubbish too.

Pennywise

kellyshay wrote: »

"you seem to have phoned the HMRC helpline (staffed by poorly trained call centre workers with a long history of bad advice) and spent a little time on the internet."
Not all HMRC staff are like this.
Its no wonder we get abused over the phone when rubbish like this is posted on a web-site, maybe she got a newly trained member of staff, normal advisors are not meant to answer qu's re Land & Property so she should have been passed to a technical advisor who are well trained, experienced officers.

Oh and to add not ALL accountants are wonderful, some are rubbish too.

I quite agree. But I spend at least an hour a day correcting mistakes and misadvice by HMRC staff. That's a huge amount of unproductive wasted time. Also, every single week, I have to send a bill to HMRC for wasted time sorting out errors etc. I quite agree that there are plenty of excellent HMRC staff - I never use the helplines unless I have to - instead I always use direct line numbers so that I can get straight to the right people. Our local tax office is wonderful - I send post directly to them and phone their direct line numbers - I don't use the helpline or send post to the centralised offices. I absolutely hate it when a client has a different tax office - it means I have to go through the centralised systems which almost every time results in delays and mistakes. I'm not having a go at the HMRC staff themselves - I know it is the system that they have to work under, including poor training. I also know that not all accountants are perfect either. If you read the majority of my post, I am telling the OP why I feel the accountant may be closer to being right in this case. By the way, I am never abusive to HMRC staff - but I will stand my ground when I know that I or my client have been given poor advice or told the wrong thing.

liam8282

I would say you need to have a look in your local phone book and go to a proper registered firm of chartered accountants.

Nobody here can actually give you any real meaningful advice as we can't see all the facts and figures, books and records. People here are just giving their own opinion on what they think you should do, without knowing anything about your businesses. (nothing against anybody here trying to help by the way!)

Saying you should set up 3 businesses, why would you do that if the Labour charges were say only £1000 a year, again we don't know the actual amounts you are dealing with here.

If you went to a firm of accountants, depending on the size of the job, I would say that it would probably cost you about the same as this random woman has charged you, but at least you would be safe in the fact knowing that an actual firm had done your work for you and you would have somebody to blame if things did go wrong.

I am actually a trainee accountant and am part through my ACCA qualification, and I would say that no real meaningful advice could be given without seeing the actual information you have.

If I were you and you were really worried about this, I would say it is worth paying for a qualified firm to do the work, just for the piece of mind it would be worth it.

johnllew

Pennywise wrote: »

every single week, I have to send a bill to HMRC for wasted time sorting out errors etc.

Do they pay them?

Pennywise

johnllew wrote: »

Do they pay them?

Yes, follow the procedure, provide the evidence of mistake in accordance with their rules, and they always pay. Never had a refusal yet, but there again, I've never tried it on - I charge the same hourly rate as I charge my clients and never try to inflate the timesheets.

johnllew

Pennywise wrote: »

Yes, follow the procedure, provide the evidence of mistake in accordance with their rules, and they always pay. Never had a refusal yet, but there again, I've never tried it on - I charge the same hourly rate as I charge my clients and never try to inflate the timesheets.

Brilliant! I assume this is the procedure you follow: http://www.hmrc.gov.uk/dealingwith/complain.htm

an1179

Hi Pennywise;16997007

Thanks for your input

Also thanks to everyone else

Pennywise wrote: »

To be honest, I think the advice given by the accountant is better than that given by HMRC.

For a start, there seems to be three businesses ongoing, a property rental (which isn't classed as a true business for tax), a caravan site, which is almost certainly a business, and groundworks, again almost certainly a business.

My OH does not take a wage as he has a pension. Commercial property rental £5,000 per annum and touring caravans with electric and toilet/shower block maybe £5,000 per annum. The accountant suggested the groundworks not us



Then you have to think about who is running each business. Is everything in your OH's sole name and nothing in yours? Do you not do anything for the business yourself? Are they all sole traders or is their a partnership in there somewhere.

The property is in joint names but I am on Incapacity benefit so I only answer the phone and do bit of book-keeping

There are different tax rules for different types of income. Different expenses can be claimed according to the type of income. Some expenses are claimable against trading income other expenses have to be carried forward to be set against future capital profits when the asset is sold, some expenses are never allowable. A loss on property rental income can only be set against future profits from property rental. You can't just bung everything in one pot and say the tax will be the same - the chances are it won't be

Rental on outbuildings £5000 per annum

. In particular, caravan sites have some pecularities - is it purely letting a square of land with no other services or do you provide other services as well? Do you own the caravans and rent them out, or is it just a site where caravan owners bring their own to stay? Do you provide hook-up power and sanitation? All these factors can help distinguish between the caravan site being just a property income (not a business) or a business (i.e. true self employment).

touring caravans with electric and toilet/shower block maybe £5,000 per annum.

Re use of home, the £2 per week is for employees - the self employed claim can be far more generous. Your accountant seems to be on the right tracks here.

Re car, again the 40p per mile is mainly for employees. It can be claimed by self employed, but a higher claim can usually be made by taking a proportion of the actual costs especially if you are leasing a relatively new car. Again, your accountant is on the right tracks.

Turning to your original loss of £7,600. What expenses made up this loss. If there was any element of improvement to the property, it isn't allowable. If you had to undertake repairs or improvements before you started to rent it out, it isn't allowable. Only ongoing repairs and maintenance are allowable. So if you bought a run down house, did it up with new kitchen, bathroom, double glazing etc., and then started to rent it out, little if any of those costs constitute valid expenses to be set against future income - they are all carried forward to set against capital profits on sale.

We have refurbished a trailer to provide toilets and showers

We did need to put a roof and rebuild the wall before we could let part of the buildings out.

We have also recently re-roofed part of the property

We have also built some walls to the entrance of the site

We also spent £1400 on a sit on mower in 2006 which I don't think we can calim 100% in that year, I asked about that and it was ignored

£250 to get things straight etc isn't excessive and like I say, I think she's closer to being right than you are. It is also unreasonable for you to expect her to answer her phone or email immediately - she may well be in a meeting with another client - you aren't her only client you know. Sorry to sound a little harsh, but I think you are being very unkind to your accountant. She is the professional and does this kind of thing day in and day out - you seem to have phoned the HMRC helpline (staffed by poorly trained call centre workers with a long history of bad advice) and spent a little time on the internet. I'm not saying that she is definately right in every aspect - without knowing the full facts that is impossible to say - but I don't think you are being fair to be so critical.

The lady did not look at our accounts at all just the final figures. I thought that she would at least look and as you have said we have put items in expenses that you say are not allowable.

If you don't mind me asking; where are we supposed to get the money to fund the items that are not expenses?

So you see why I wanted advice .

Pennywise

If the property is jointly owned, the income is unearned income and the income is taxed jointly upon you both, regardless of who does the work.

Most of the work you did to make the property lettable isn't allowable against rental income - it is capital in nature. Where you get the money from to pay it is completely irrelevant - except to the extent that if you borrowed the money, you'd get tax relief on the interest you pay.

So already you have two separate sources of income, i.e. the caravan site and the building rental. It is possible that the building rental is more likely to be part of the whole "business" making one business - i.e. self employment, but very unlikely that the caravan site could ever be regarded as simple property income - because you're doing more than renting out land and/or buildings - you're providing services as well. Your posts are not making the groundworks side of things clear, so we'd need to know more about that but there could be valid reasons for OH to have that completely separate from the property income businesses.

I'd say that because you are providing services, the caravan site is a business. You own it jointly, so it is a partnership. You can split partnership profits between you however you think fit, regardless of who does the work.

I'm afraid that you have fallen into the classic trap of expecting tax law to be understandable and common sense. It isn't I'm afraid. Tax law is full of inconsistencies and contradictions. Never try to apply logic or common sense to tax law - it is the surefire way to the madhouse.

Whether your accountant is any good or not is something I can't say. What I can say is that from the information presented, her take on the situation is no more likely to be wrong than your own initial beliefs. As an accountant, I can see where she is coming from as I too often have clients coming to me expecting tax law to be logical and coherent - the difference is that I explain to the client why they are wrong and show them the tax law to prove it. Perhaps you should take a few deep breaths and talk to your accountant in a calm and sensible manner - any decent accountant will be happy to talk things through with you and explain anything you don't understand.