Personal crisis with large accountancy fees with small turnover.

HugoSP

Hi

I've started this new thread on this topic that is a spin off from my earlier thread.

http://forums.moneysavingexpert.com/showthread.html?t=685573

Basically we have income from property owned in both our names and also have a partnership with a low turnover at the moment.

Although the tax year 2006 to 2007 has now been sorted by the accountant, I have had their quote for 2007 to 2008.
For all the accounts and 3 tax returns it is now just under £1000 :eek: . This is set against some £700 the previous year.

Their justification is that essentially I am asking for more than I have paid for with regards to 2006 to 2007. They have done extra work for that year that they have not charged me for.

The total turnover of our properties and business was some £30k last year, plus my wife earned some £5k in her part time job. My wifes income as given to HMRC was about £6k and mine was nil, as I have managed to carry forward losses from previous years.

I should point out that they are all qualified accountants. I have a recently qualified accountant doing my figures. I have tried to negotiate the figure down but to no avail. In the nicest possible way I have been told to take it or leave it, which I don't have an issue with. After all it is business.

After my earlier post I no longer have an issue with the quality of service I am receiving.

I have relied on my accountants for two things.

1. To prepare accounts for the partnership and the properties. This identifies capital writedowns etc that may or may not appear on my tax form.
2. To fill out tax forms for both myself, my wife and the partnership.

I do my own books via quickbooks and my accountants have basically been happy with the quality of data they have received. They have made minor adjustments as the partnership has charged the properties for work done etc but as I understand it there have been no significant issues.

However, I am finding it hard to justify handing £1k over to these people when for personal reasons (property renovation) turnover is likely to be low for a year or two. This figure will basically write off any profit I'm likely to make.

My problem is that I don't fully understand accounting. The tax side I suspect is reletively easy, HMRC have been good at answering questions. I seem to have voids concerning accountancy and quickbooks, which is the package I've been using.

My options are:

1) Stop trading. The partnership would cease and we would only have the turnover from the properties to worry about. We could probably do the accounts for these quite easily using quickbooks then transferring the data into profit and loss accounts etc. I have a working knowledge of quickbooks that enables me to use it as a bookkeeping tool but not yet to pull off accounts from it. Either I could reduce my accountants bill just by running the properties, or I could fill in the tax returns myself.

2) Carry on as before, as Jimmo has hinted, the time I would spend on it would detract from the business and my other activities.

3) Keep the partnership and properties running as before but do my own accounts. To this end I would need some serious accountancy traning together with access to help and support. On the plus side this would save me around £1k per annum but it does mean that I would be on my own, which scares the !!!!!! out of me:eek:

The sensible option sounds like 3. now I know that I should be able to handle this but...

I am basically highly stressed about the whole situation as I haven't a clue as to where to start.

To go it alone for next year, I guess I would need to be able to put my hand on last year's accounts, which I have. Most importantly I would need to know exactly what my accountants have allowed in terms of capital widthdrawal (taking out what I have put into the partnership etc) and what losses/capital writedowns have been accointed for both in my accounts and tax returns.

Where do I go from here please?

I think it's the first time that I have to admit that I am bricking it on this forum but I am - seriously losing sleep over this!

What I think I need is an idiots guide to taking over the accounts from my accountant and doing them myself.

Thanks

Debt_Free_Chick

HugoSP wrote: »

3) Keep the partnership and properties running as before but do my own accounts. To this end I would need some serious accountancy traning together with access to help and support. On the plus side this would save me around £1k per annum but it does mean that I would be on my own, which scares the !!!!!! out of me:eek:

The sensible option sounds like 3. now I know that I should be able to handle this but...

I am basically highly stressed about the whole situation as I haven't a clue as to where to start.

To go it alone for next year, I guess I would need to be able to put my hand on last year's accounts, which I have. Most importantly I would need to know exactly what my accountants have allowed in terms of capital widthdrawal (taking out what I have put into the partnership etc) and what losses/capital writedowns have been accointed for both in my accounts and tax returns.

Where do I go from here please?

Doesn't Quickbooks do the accounts for you? Profit & Loss and Balance Sheet?

Can you take a backup of Quickbooks for y/e 2007 and have a play with it? See what QB produces and then look at what your accountant produced - compare the two and then see what the differences were.

The losses on your tax return should be supported by the accounts - there shouldn't be a difference between the two. In theory, there can be - as some deductions in the accounts are not allowed for in your tax return e.g. depreciation. But in practice, you put them down in your tax return and add them back as "not allowable". Once you see the tax return, this will become clear. I'd start with 2007 accounts & QB ... then look at your 2007 tax return and your accounts and work it through.

Capital writedowns - effectively, depreciation, but using the taxman's rules. Very easy really ..... you just need the c/f figures from 2007.

I think this is simply a case of "you don't know what you don't know", but all you need to do is some research.

Start with a thorough evaluation of QB as I think it will do all the accounting for you.

HugoSP

jimmo wrote: »

I know you can take this but the taxman in me suspects that there is some sort of fiddle going on converting rental losses into partnership losses into allowable losses for the individual.
What exactly does the partnership do?
The more you feel able to explain the better we can help.

Jimmo - I understand where you are coming from, so I've tried to deliver the whole truth below, without waffling.

Essentially the partnership was set up on the advice of my accountant to allow losses and profits to be shared in a more tax efficient way. I've not tried to do anything that is not allowed. Indeed I have questioned my accountant closely over the legalities of this. My wife does sometimes get involved in the business whether it be helping with admin to actually painting someone's house, although her involvement is not on a regular basis, but an as needs basis.

The partnership is now what my sole trader was - building and property maintenance etc. It came into effect on the 1st January 2007.

That year my wife made a profit on the rental side, as she had more property that I did. The setting up of the partnership with a Heads of Agreement apparently allows profits or losses to be shared at the partners' discretion.

Quite by chance the partnership was slack in the first 3 months (1 Jan to 31 March). Hence on apportioning profits and lossess on the basis of when invoices were actually raised, it made a loss in this period.

However as a sole trader in the first 9 months of the tax year 1 April 06 to 31 Dec 06) immediately prior to the setting up of the partnership, I made a profit, which was offset by losses from previous years. Hence my taxable income is 0.

My wife's share of loss that the partnership made was then offset against her profit from her share of the properties. As these profits and losses occurred in the same tax year she is allowed to offset losses from one business against profits from the other (so I am told).

Does that answer your questions, and above all, what are your views?

Thanks for replying

HugoSP

Debt_Free_Chick wrote: »

Doesn't Quickbooks do the accounts for you? Profit & Loss and Balance Sheet?

Can you take a backup of Quickbooks for y/e 2007 and have a play with it? See what QB produces and then look at what your accountant produced - compare the two and then see what the differences were.

The losses on your tax return should be supported by the accounts - there shouldn't be a difference between the two. In theory, there can be - as some deductions in the accounts are not allowed for in your tax return e.g. depreciation. But in practice, you put them down in your tax return and add them back as "not allowable". Once you see the tax return, this will become clear. I'd start with 2007 accounts & QB ... then look at your 2007 tax return and your accounts and work it through.

Capital writedowns - effectively, depreciation, but using the taxman's rules. Very easy really ..... you just need the c/f figures from 2007.

I think this is simply a case of "you don't know what you don't know", but all you need to do is some research.

Start with a thorough evaluation of QB as I think it will do all the accounting for you.

Thank you so much for this.

My main problem with quickbooks is that I find it difficult to enter the outgoings in the right way. 90% of the outgoings are matariels, consumables, tools etc. These are OK. It's the strange ones that throw me. Every year the accountant makes alterations to my QB files then we harmonise them, so that I am using the same data for the next tax year as they are.

I find that figures vary between what QB gives under the reports section and what the accountants produce. They make changes and don't explain the differences unless you ask them and when I have had to discuss a £50 charge for two phone calls about CGT I am very wary about phoning them up.

Although today I did phone them about some other issues, and got them explained - we'll see if I get an invoice.

Anyway - I seem to be able to just about track the accounts from their take on the QB files through to the Tax Returns.

So - if I can pull of the Balance Sheet and Profit and Loss account from QB, then compare them with the same that the accountant has given me then I may get there.

My aim would be to use their accounting system as a model for next year. One area that I would need to do further work on is understanding exactly what depreciation allowance I could claim when the partnership goes over the threashold.

If I do go it alone, I risk, as many people do, making mistakes that I don't spot.

I think I basically need but can't afford quickbooks/accountancy training.

Anyway, all I am doing is stressing myself out about it. When things are a bit quieter I will certainly do what you suggest

Cook_County

Now you have explained the question so clearly I have more patience than before.

OK, firstly your accountants advice on income splitting was probably very good at the time - I hope though they at least mentioned Arctic systems to you?

Secondly, that advice (to set up the partnership) may not "fly" past 6 April 2008. Take a read of the consultative document on income splitting here: http://www.hm-treasury.gov.uk/consultations_and_legislation/income_shifting/consult_income_shifting.cfm

Third, I agree with your own conclusion, you'll be happier once you are more in control.

And - on fees - £1,000 is probably on the low side once the accountant has paid for rent, PI insurance, salaries, continuing education etc...

HugoSP

Cook_County wrote: »

Now you have explained the question so clearly I have more patience than before.

OK, firstly your accountants advice on income splitting was probably very good at the time - I hope though they at least mentioned Arctic systems to you?

It was on the basis that losses could occur with either one or the other businesses and that this arrangement would be a tool to carry it forwards.

The junior accountant I spoke to did mention a case where a partnership was challenged by HMRC. As I understand it the HMRC lost the challenge but are now rewriting the rules. To be fair to them I can see why.

Secondly, that advice (to set up the partnership) may not "fly" past 6 April 2008. Take a read of the consultative document on income splitting here: http://www.hm-treasury.gov.uk/consultations_and_legislation/income_shifting/consult_income_shifting.cfm

I'll need to keep an eye out for this. I think this is what she was talking about - thanks.

Third, I agree with your own conclusion, you'll be happier once you are more in control.

Yes, even if that control means that I could do it if I wanted to and know what's going on. I am now about 90% of the way to being able to understand how the calcs get from my QB files to the tax returns. As I said earlier the only hocus pocus seems to be the QB to BS, P&L statements. This is because the accountants do a bit of housekeeping with QB as I don't always do what I should - not through want of trying but if I get it wrong they just correct it, and don't tell me what they have corrected unless I ask. So today I have asked.

And - on fees - £1,000 is probably on the low side once the accountant has paid for rent, PI insurance, salaries, continuing education etc...

I think you're right. Although I do the QB entries, that is all I do. They take it from there and all I have to do is sign the accounts. The costs include 3 tax returns.

I am reflecting over my next move, but the sensible answer currently seems to be to increase my turnover/profit and leave this job to them.

Murdina

The problem is that your accountant has set up a structure for you which may save some tax but is costly to administer. Accountants are not always very good at pointing this aspect of tax advice out.
If you want to make life easy, then cease the partnership and just trade as yourself. However, even to get to that point now you may need more help from your accountant to get the returns right for the final period of the partnership. Maybe try asking your accountant how they much they would cut the bills going forward if you did this. You might also find then that you could get a cheaper accountant, as it would all be a lot simpler - partnership tax returns are quite messy to sort out so end up costing more (and of course you have to do 3 returns). Would also make your accounting a lot easier.
Maybe quick books over engineers it all for you - it may make life easier for your accountant but you might feel happier with a manual system.

HugoSP

Murdina

Some good points wrt the accountants advice. Having read the intro of the draft document it seems though our partnership would need to demonstrate that we are both working in the business, though the accountant didn't seem to think that they would look too closely, but suggested that we kept records of who did what just incase we received an enquiry.

The extra costs of running the partnership will be offset by tax reductions for 07 to 08. Then we will have to consider our next move I think.

As far as QB is concerned, yes it does over engineer it but it is what I have been using on the recommendation of my accountant. There are facilities on there that I would never use.

My first set of books went in in Excel and it caused the accountants grief but they did process them for a very good price. The second year I used QB, and have done again this year.

I really just need to understand how to account for things like interest on bank accounts etc. I had been trying to simplify it by treating interest on bank accounts etc as part of my turnover, whereas HMRC want it listed separately.