There's a good article here on AccountingWeb about the recent Hillgrove tax case, which essentially revolved around a business owner blaming his accountants for his failure to pay large quantities of VAT and PAYE to HMRC. The business owner, Richard Hillgrove, lost in the end, but it will have been an uncomfortable few years for the accountants. The five recommendations made to accountants to protect their position in similar cases are (paraphrasing somewhat):
- Get written confirmation of the client's acceptance of significant recommendations you give them.
- If you've got doubts about a client's ethics, don't put your head in the sand - look into them.
- Always be conscious of your responsibilities under the anti-money laundering recommendations.
- Don't make assumptions (the accountants had done lots of guesstimating of whether costs were business or personal - all accountants have to make some educated guesses like this from time to time, but you need to be careful).
- Don't let difficult situations drag on - nip them in the bud.
Those are all really good and accurate points. There's another really important aspect though.
The defence case revolved around efforts by Hillgrove's accountants to restructure his business (from LLP to Limited, chiefly), in order to ring fence old tax liabilities and set the business on a more tax-efficient footing going forward.
The thing is, restructuring can only do so much. Yes, trading via a different legal structure can often make a difference (sometimes substantial) to the amount and timing of tax payments. What it can't do is turn a bad business into a good one. What's clear from the case is that the business was not making nearly enough profit to feed its owner's requirements for income. The profits from the business might have been enormous, but if the owner's cash needs are more enormous still, it still isn't going to work in the long run! Restructuring might change the pace at which the business owner digs themselves into a hole, but unless it's a marginal case, they're still going to be digging a hole somewhere.
Sometimes the accountant needs to step back and point out that the problem with a business isn't the way it's structured, but something more fundamental - either it's a rubbish business, or it's a business that would be good were it not for the income requirements of its owners. If either of those things are the case, it's not a restructuring scenario. It's a situation where either the business needs to make more profit or the owner needs to spend less money personally. Putting off the inevitable by moving to a new legal entity without addressing the underlying problem might stop the digging of hole one, but it just means you're starting to work on hole two. Be brave and try and address the real issue. If your client isn't prepared to do that it's usually easier and less stressful to just walk away.