Dealing with clients' incomplete records

When a client’s records are incomplete, agree in writing what the firm will do with the records that exist, that the client remains responsible for the gaps and the estimates, and how those estimates will be shown to HMRC. Price the reconstruction separately from routine compliance, usually as an estimate with a stated basis, and tell the client before the fee is exceeded. If the gaps are too large to produce credible figures, the firm should say so rather than file numbers it cannot stand behind.

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What is the accountant’s role when records are incomplete?

The firm builds the best figures it can from the evidence available, using techniques such as an opening statement of affairs, reconstructed control accounts and margin analysis; those methods are explained in our page on preparing accounts from incomplete records. This page is about the professional side: how to scope, document, disclose and charge for that work.

The starting point is that the firm is not verifying anything. ICAEW describes accounts preparation as arranging the client’s data into financial statements without verifying it. PCRT Help Sheet A says a tax agent is not required to audit the client’s books or verify information the client supplies, but must take care not to be associated with facts they know or believe to be incorrect or misleading, and should consider making clear to HMRC how far they are relying on the client’s information. With incomplete records, the firm relies more heavily on the client than usual, so both points carry more weight.

HMRC’s own guidance recognises the limit. The Compliance Handbook at CH84540 says no agent can produce correct accounts and returns from grossly deficient records, and that a taxpayer who uses an agent must still give them all relevant information.

What does the law expect of the client?

For companies, section 386 of the Companies Act 2006 requires adequate accounting records, sufficient to show and explain transactions and to disclose the financial position with reasonable accuracy at any time, including day to day entries of money received and spent. Under section 387, failure is an offence by every officer in default, with a defence for someone who acted honestly where the default was excusable.

For the self employed, GOV.UK says records must be kept for at least five years after the 31 January submission deadline for the tax year. If records are lost, stolen or destroyed and cannot be replaced, the taxpayer must do their best to provide figures and tell HMRC whether they are estimated or provisional. HMRC’s Enquiry Manual at EM4650 says a penalty of up to £3,000 can be charged for each failure to keep or preserve adequate records for a return, but that it is only sought in more serious cases, such as deliberate destruction or a history of failures, and that a first failure normally receives a written warning. Explaining this to the client early helps them understand why the firm is insisting on certain steps.

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How should the engagement be set up?

Treat the reconstruction as a separate piece of work, either in its own engagement letter or as a schedule to the existing one. It should record:

which records the client has provided and which are missing;
the methods the firm will use to fill gaps and that the results are estimates;
that the client is responsible for the completeness and accuracy of the information, and for reviewing and approving every estimate;
what the client must still supply and by when;
the fee basis for the reconstruction, separate from the routine compliance fee.

At the end, ask the client to sign a letter of representation listing the significant estimates and confirming the information given, such as cash takings, drawings and personal spending, is complete to the best of their knowledge. ICAEW’s helpsheet suggests written representations are appropriate where tax computations rely on information that is crucial and has not been independently corroborated, which describes most incomplete records work.

How should estimates be shown on a tax return?

HMRC’s Self Assessment Manual at SAM121190 distinguishes two types. A provisional figure is given pending the final figure. An estimated figure is one the taxpayer wants accepted as final because an accurate figure cannot be obtained, for example because records have been lost. Returns containing either should be accepted if they otherwise satisfy the filing requirement. For estimated figures, the taxpayer explains in the “Any other information” box why estimates were used. Provisional figures must be followed by final figures, and HMRC says it will take action to obtain them, which may mean opening an enquiry.

The same manual page tells HMRC staff that where a particular agent appears to be filing a significant proportion of returns with provisional or estimated figures, they should inform the Compliance Manager. That is a reason to use estimates when they are genuinely needed and explained properly, not as a routine way of meeting deadlines. Our page on provisional and estimated figures covers the return boxes in more detail.

What disclaimers should the firm use?

Disclaimers work best when they are specific. A general statement that the firm accepts no responsibility for the figures adds little; what helps is a clear record of what was estimated and on what basis. In practice that means:

the standard accountants’ report on the accounts, which ICAEW says sets out the nature of the engagement and the respective responsibilities to avoid expectation gaps;
a covering letter to the client listing each significant estimate, the method used and the figure, and asking the client to confirm it;
a disclosure in the tax return explaining the estimates, so the return does not present estimated figures as if they were drawn from complete records.

Disclaimers cannot cure accounts that the firm knows are wrong. For a company, the directors must still approve the accounts, and PCRT still applies to the return. If the records are so deficient that the firm cannot reach figures it regards as reasonable, the honest course is to tell the client in writing and decline to file rather than add wording that tries to distance the firm from the result.

How should the extra work be priced?

Reconstruction work is unpredictable, so a fixed fee carries real risk. Many firms use two stages: a small fixed fee for an initial review of what exists, followed by an estimate for the reconstruction based on what the review finds. Whatever the method, the ICAEW Code requires the firm to explain the basis of fees and give an estimated initial fee at the earliest opportunity (paragraph 330.4), and to confirm it in writing (R330.5). ICAEW’s fee information helpsheet adds that when an estimate will be exceeded, the firm should tell the client in advance, try to give a fresh estimate and seek consent to continue, and R330.4B.2 requires an explanation of any excess. See fee quotes and estimates for how to word this.

Ask for payment on account before the reconstruction starts where the client’s history suggests a risk of non payment. Record time carefully: if the client later questions the fee, R330.4B.1 entitles them to a breakdown with enough detail to understand how it was calculated.

How might this work in practice?

Illustration only. A self employed decorator arrives in December with bank statements, a few supplier invoices and no record of cash jobs. The firm agrees a £250 fixed fee to review the papers, then estimates £1,200 for reconstruction on top of the usual £600 return fee. It uses supplier statements to rebuild materials costs and the decorator’s diary and quoted prices to estimate cash income.

The firm sends a schedule of estimates: cash income of £9,000 based on 30 small jobs at an average of £300, and materials paid in cash of £1,500. The decorator confirms both in a signed letter. The return explains in “Any other information” that income from cash jobs and some materials were estimated because records were not kept, and how the figures were reached. The firm also explains the record keeping rules and agrees a simple monthly routine for the following year.

When should a firm decline or step back?

Missing records are often innocent, but they can also be a sign of something more serious. If the client cannot or will not explain significant unexplained deposits, or gives accounts of cash income that do not match their lifestyle, the firm must consider its anti money laundering obligations; see money laundering red flags. If the client refuses to include figures the firm believes are required, PCRT’s guidance on dealing with errors applies. Where the relationship cannot continue, a properly worded disengagement letter protects both sides.

What mistakes do firms make?

Absorbing reconstruction work into a fixed compliance fee and resenting it later.
Filing estimated figures without telling HMRC they are estimates.
Using provisional figures to meet a deadline when final figures were never likely to follow.
Making estimates without the client’s written agreement, leaving the firm owning figures only the client could know.
Failing to fix the client’s record keeping, so the same reconstruction is needed every year.

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Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.

Dealing with clients’ incomplete records