Employment Appeal Tribunal case takes accountants back to basics on self assessment
By Justine Riccomini, Head of Tax (Employment and Devolved Taxes)
12 January 2024
Find out how a recent Employment Appeal Tribunal case involving estimated expenses on client income tax returns invites ICAS members to reflect how to approach self assessment returns for individuals.
Our members will no doubt be very interested to learn about the decision issued in the December 2023 case of Stuart Harris Associates Ltd v Gobudhun [2023] EAT 145, an Employment Tribunal case involving an internal dispute over estimated expenses on clients’ income tax returns at a firm of accountants.
Background
The firm, Stuart Harris Associates Ltd, had employed Anita Gobudhun (AG), a member of ACCA, since 1 November 2014. In 2020, AG contacted her professional body to ask for advice in relation to estimated expenses values which she had been instructed to insert in clients’ income tax returns. AG’s professional body advised her that “estimated expenses” should be excluded from tax returns (See para 11 of decision).
Upon receiving further instructions from Mr Harris to include further amounts of estimated expenses on tax returns, AG refused to do this, claiming that they amounted to “unsubstantiated deductions in the accounts". AG had concerns that enquiries had been opened into other clients’ affairs due to the practice, and in certain cases, accurate figures were available but were not used and a higher ‘estimated’ figure substituted.
Mr Harris maintained throughout that HMRC accepted estimated expenses in income tax returns, and explained this to clients, stating that it was to cover any other miscellaneous items that might crop up later on, even where exact figures had been supplied by the clients.
Disciplinary and dismissal
An online disciplinary meeting followed in June 2020 and on 23 June, a final written warning was issued, and in July. AG’s appeal was rejected, which led to her resigning with immediate effect in August 2020. AG claimed constructive dismissal because her employer required her to include 'estimated' expenses in tax returns (which were often not based on figures provided by clients and higher than the accounting records indicated) and she felt this compromised her professional integrity and debased the trust and confidence within the employment contract.
Two issues
The two main allegations against the firm by AG were that returns were prepared dishonestly (where exact figures were available) and the other being that AG was constructively dismissed for challenging the practice of inflating expenses claims.
Provisional and estimated expenses on self assessment returns of individuals
Going back to basics, it should be noted that the guidance from HMRC on provisional and estimated expenses, updated as at 8 January 2024, explains these key points:
- Returns which include provisional or estimated figures should be accepted provided they can be regarded as satisfying the filing requirement.
- A provisional figure is one which the taxpayer/agent has supplied pending the submission of the final/accurate figure.
- An estimated figure is one which the taxpayer/agent wishes to be accepted as the final figure because it is not possible to provide an accurate figure, for example, where the records have been lost…tell us in the ‘any other information’ box why estimated figures have been used.
- Where it appears that a particular agent is filing a significant proportion of returns with provisional or estimated figures, you [the HMRC officer] should inform the compliance manager.
Decisions
Due to covid and other delays, the Employment Tribunal hearing was suspended but the judge gave a provisional view that AG had in fact been constructively dismissed. When the trial resumed, that decision was confirmed – and Mr Harris was described as “either dishonest or incompetent”.
On appeal, the Employment Appeal Tribunal concluded that whilst the decision reached by the Employment Tribunal in relation to the dishonesty argument as presented by AG was based on an incorrect test, AG had indeed been constructively dismissed. This resulted in AG beingawarded a basic award, compensation and costs amounting to around £50,000.
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