If you are a CIS subcontractor you’ll probably know that it’s normal to be owed a tax rebate after the tax year ends. This is because your tax return shows that, based on your income and expenses, your final tax and class 4 National Insurance liability is less than the 20% tax deducted from your income.
As it is common for CIS subcontractors to be entitled to tax refunds, you have become targets for unethical advisers. As their fee is often a percentage of the final tax refund it is in their best interests to secure the highest refund possible – regardless of honesty. These advisers may try to secure a higher CIS tax refund by including non tax-deductible expenses or even entirely imaginary expenses on your tax return. For example, mortgage interest on a domestic mortgage or accommodation and travel costs for private travel from home to a permanent office. Neither of which are allowable business expenses.
The buck stops with you
By law, you are responsible for the actions of your accountant. It could well be twelve months down the line before HMRC come looking to reclaim their money. A fake claim is fraud and you must repay the CIS tax refund or potentially face bankruptcy. It has been reported that when HMRC comes knocking, the tax advisors have bolted their door and moved to a different area to set up shop. Or, in their words, are suddenly “unavailable”. Although you may well have legal rights to pursue such firms, they rarely have the correct insurance to repay you.
Be careful what you sign
Some firms will ask you to sign a particular authorisation on submitting your tax return which allows the money to be paid straight to your accountant. They then deduct their fee and pass on the rest of the refund to their client. In some cases this is perfectly legitimate and protects the firm from doing work that they may not get paid for.
But exploitative companies use this clause alongside their knowledge to rip off their clients. As many clients are not aware of the possible amount due, they happily accept any amount passed on by the firm. Therefore they are unknowingly accepting over-priced fees or losing the entire amount of their legitimate tax refund! There have even been cases of firms submitting tax returns and receiving rebates from HMRC without their clients’ knowledge. Over years of tax-paying employment this could be £20,000 that you do not get back into your pocket.
No-one wants to pay too much or too little tax and it is your responsibility to make sure your finances are in order. If you employ an accountant to get you through the mass of rules and paperwork, you need to check this list of warning signs now:
- There are no letters or emails recording the advice you are given. Everything is either face-to-face or on the phone.
- You do not have a copy of your own tax return.
- You have a copy of your tax return but income amounts are not correct or you do not recognise some of the expenses listed.
- No-one has asked you for any receipts to support any part of your claim.
- The firm as not sent you a basic letter confirming what service they are providing for you and their price structure.
- The company touts itself as the one who gets the “biggest refunds”, or a mate recommends them because they always get a “big refund”. The principled company’s aim is to get you the correct refund – size is not the most important thing here.
- Your advisers are not registered with the correct accountancy or tax professional body. These bodies ensure that their members hold the correct qualifications and regulate the industry. So, you know that they know what they are doing and have somewhere to go if you are unhappy with their service.
The final point in this list is an easy one to check. Here are the main professional bodies in the UK which govern the accountancy industry.
- Association of Accountancy Technicians
- Chartered Institute of Taxation
- Institute of Chartered Accountants in England and Wales
- Institute of Chartered Accountants of Scotland
- Association of Chartered Certified Accountants
It’s always best to double check who you are dealing with to make sure everything is above board.