Accountant decision about tax year start date leading to €1500 more in tax - anything I can do?

Pratch

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I had this written out and realised it got quite long so decided to bullet point it below to make it as clear as possible – apologies for the length and I really appreciate any advice, even if it’s “you have no options”.

  • I started a sole trader to take on a single 3 year contract.
  • Work began in first week of January 2012.
  • Each year I knew I’d earn less due to reduction in days being worked each year.
  • Accountant made decision to have my financial year running from start of February to end of January the following year – originally when I asked why they were doing this they said “because your first invoice was paid in February” and that was all they said.
  • They have already filed first two years of tax and my final year is now due.
  • For my final tax year they sent me the details which were over €4500 more than I had calculated - my initial calculations were very basic so I spent a weekend going through everything myself to check and subsequently went into them with my own spreadsheets to show how much I thought I should be paying and they then acknowledged they had miscalculated and would recalculate.
  • They’ve come back again and as a result of my own calculations I have worked out that as a result of their decision to start my financial year in February that I will now pay over €1500 more in tax than if they had put my tax year on an actual basis from January to December from the beginning.
  • Realising the extra tax I’d pay I queried their decision and they told me that they did this as they thought I’d be earning more each year and from a tax perspective it would have “worked out” if I’d continued to earn more each year and continued with the sole trader for years to come – both presumptions that if they had asked I would have clarified would not happen.
  • Further, when they submitted my first two years tax they had the figures in front on them showing clearly that I earned LESS in my second year than in my first year – so they had the information to clearly show that their reasoning was wrong for my situation, but they went with it anyway without calling me to say what they were doing and to give me a rationale for it.
  • In a subsequent call another accountant in the firm told me it was a Revenue requirement to have my financial year beginning in February.
  • I then read up about it myself and queried their decision again saying that my understanding was that this was not a Revenue requirement and they then said it was optional to do this and it was because they would have been too busy to have done it from January to December from the beginning.

Given two years of tax has already been paid my question is about whether I can do anything about their decision which is now costing me €1500 more in tax? I know the obvious answer is to ask the accountant but frankly I don’t trust the information their giving me anymore.

Ironically, they also recently told me that I could have de-registered for VAT in my second and third year of the business as I went under the threshold in these years – but having told me this AFTER the contract ended is useless information and cost me an increase in pay as I was told by the people paying the contract that the cost of the additional VAT payments meant they couldn’t afford the raise. If they’d have told me this in the second year their decision to start my tax year in February might have ‘worked’ but again there was zero communication from them.

Apologies for the length of this and thank you for any piece of advice you could give me.
 
If I understand you correctly you started in January 12 and your accountant advised that you should prepare accounts to end January 13. This is 13 months but I assume that the said it was only 12.

So for the tax year 2012 you paid the tax on 11/12s of this profit.
For 2013 you paid tax on 12/12s of this profit.
For 2014 you are due to pay tax on the profit for the period 1.1.14 to date of cessation.

So you have a couple of options did you consider a claim for the second year excess which would reduce the profit assessable in 2013 to the actual profit for the calandar year 2013 rather than the year to 31.01.13.

If you cease within 3 years there is relief know as short lived business relief which mean that the profit assessed can't be higher than those earned.
 
Hi Joe_90 - yes you're spot on with the dates there and 11/12s and 12/12s tax on profits.

Thanks for the info on the short lived business relief. I've had a read of a PDF I found about it and trying to get my head around it! There is something about it that seems familiar from looking now at the notes I took from my last meeting with them where they realised the amount assessed was higher than the actual amount so I think it's possible that even with this calculation I'm still €1500 out.

The more I'm pulling together figues I think the extra €1500 in tax is possibly the result of how the 11/12s leads to income being 'moved around' to other years (apologies for this total layman's description). I'm going to just use made up figures that are in the ballpark just to illustrate what I'm thinking.

Looking at things from an actual (Jan-Dec) year:
2012: Gross = 38k, Expenses = 7k. Net = 31k. Tax = €7k
2013: Gross = 34k, Expenses = 3.5k. Net = 30.5k. Tax = €7k
2014: Gross = 20k, Expenses = 2k. Net = 18k. Tax = €2.5k
ACTUAL: €16.5k

Whatever way everything is working out from the way the accountant is doing it the income looks something similar to this:
2012: Gross = 34k, Expenses = 6k. Net = 28k. Tax = €6k
2013: Gross = 36k, Expenses = 4.5k. Net = 31.5k. Tax = €7.5k
2014: Gross = 22k, Expenses = 2k. Net = 20k. Tax = €4k
ACCOUNTANT: €17.5k

So I guess if the above is accurate in terms of how I'm paying more in tax and that 2012 and 2013 have already been paid is this now just down to bad luck with how income and expenses 'fell' over the life of the business?
 
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