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CIS customer, not receiving payslips and asked to cash chqs

I have a client on the CIS scheme, his boss is not provide wageslips or if he does they do not match the amount paid.  His boss is also asking him to cash cheques for jobs and deduct his wages and pay his boss the difference.

My concern is that if he got a tax inspection it will show he has been recieving larger amounts of money than received and he does not have any paperwork from his boss to show this.

His boss has the excuse that he is waiting for a new UTR number, which I think is untrue.

What is the best course of action? All advice appreciated

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Just make sure there is paperwork for everything

1. It is a requirement for a CIS contractor to give their CIS subcontractors payment slips that show:

contractor’s namecontractor’s employers’ tax referencetax month to which the payment relatessubcontractor’s name, unique tax reference or specific subcontractor referencethe gross amount of the paymentcost of any materials which have reduced the gross paymentamount of any tax deductions made andverification number

2. Make sure your client gets a clear receipt from his boss when he returns the balance of the cash from the cashed cheques.

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22nd May 2012 14:04

Suspicious!

I have to say my suspicion would be that the 'boss' (more correctly, the main contractor) is not declaring everything he receives (perhaps for both VAT and income tax).  That is the reason the boss does not want the cheques to go through his own business bank account.

In your position I would be carefully considering my obligations under s330 PoCA 2002 / MLR 2007 to report a suspicion of money laundering and tax evasion by the 'boss'.  I think it is likely you are legally obliged to file a report with your firm's MLRO or with SOCA.

Your client, the sub-contractor, is placing himself in a difficult position.  He is banking money which ultimately will not be reflected on his tax returns - and so he would be in difficulties if HMRC accused him of not declaring his full income and got hold of his bank statements.  He is not getting the correct paperwork to support his CIS returns.  He is, arguably, conspiring with his boss to evade tax (i.e. the tax the boss ought to be paying) and money laundering by becoming concerned in an arrangement which facilitates the acquisition of criminal property by his boss.  Both of these are criminal offences.

Presumably as your client is in the CIS scheme he is self-employed.  There may be an additional issue as to whether he is in fact an employee of the boss.

Your client would be wise to ditch the boss and get his sub-contract work elsewhere if possible.  I think you should tell him that and point out to him the dangers of putting cheques through his own account (in terms of tax, interest, penalties and extra accountancy fees if HMRC start looking into things).

David

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22nd May 2012 16:21

I think i've heard something like this before

A few years ago someone once told me that the main contractor was doing this to some of the subcontractors.

Main contractors makes correct payment into subcontractors bank, but on the pay advise the payment is higher and the main contractor makes the higher payment to HMRC for deducted tax. Main contractor then keeps the difference between stated pay and actual pay and is also increasing expenditure which is reducing CT liability. Year end comes along and subcontractor gets a larger refund than should be due (because the main contractor has made it look like income and deductions are higher). Main contractor and subcontractor win. HMRC and the rest of us non ML tax payers lose.

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