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CIS failure and money laundering report

I recently discovered that a client contractor had cancelled his CIS registration but continued paying some firms who were supply and fix. This was a complete misunderstanding on his part and he accepts that he has failed to correctly operate the scheme. I warned him that if he now notifies the Revenue he will be faced with significant penalties (not limited to £3,000 as he is not a new contractor) and if he does not, then those potential penalties will increase very significantly as time goes on if the Revenue should later find out, due to the continuing delay in submission. He has agreed that we should notify the Revenue. I am quite happy that this does not require a money laundering report.

However, had the client refused to notify, and perhaps simply registered now to get things right for the future, I felt that I would then probably have to make a MLR. My reasoning was as follows:

Whilst most of the subcontractors were probably gross payment firms, some should have had a tax deduction, although they all looked like legitimate businesses so have probably declared the income. I felt that although there would probably be no loss of tax to the Treasury (ignoring the timing issue), that the client had failed to pay over the tax and so had effectively gained a financial advantage and now that he is aware of this, it would be dishonest of him not to put things right. I took the view that although the client had effectively paid too much to the subcontractor and therefore did not gain overall, that the tax and the overpayment were really two separate transactions that could not be offset.

Also, as the legislation requires a contractor to register and make returns or pay penalties, would a failure to report the failure mean that he has dishonestly avoided the payment of the penalty so that the saving of the penalty does itself become criminal property and thereby necessitating a ML report?

The reason for asking now is that I have just found on another forum that in a similar situation the OP was advised by all those responding that as there was no loss of tax, it was acceptable to advise the client not to notify but to get it right in the future. Clearly if there are any legitimate ethical and legal reasons for not notifying the Revenue of the failures, I would like to know!


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06th Dec 2012 20:31

Is there anybody there ?


Are you the reincarnated JR ?


one Z for yes ,two zs for no

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By John R
10th Dec 2012 13:27

Any other comments anyone?

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10th Dec 2012 15:27

No clear answer

Javert viewed the law in absolutes and see where it got him.

HMRC's own racket with CIS seems to me to be more about penalty farming than it does about compliance. The penalty that will be imposed on your client for this small error (particularly when there has likely been no loss of tax) in a complicated area will be hugely out of proportion - possibly worse than for the delilberate evasion of his own tax.

So we have an unjust penalty however legally due that you client could have illegally avoided by ignoring it and if he did should you report him for it or commit a further offence yourself...






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10th Dec 2012 15:41

begs the question who

we work for.... I fear the Revenue would have you believe that if you can't reconcile your bank to the penny that the difference is down to cash payments received from the customer and should be reported immediately....that if the client comes to your office in a merc then he must be on the rob and be reported.....etc etc....

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By John R
11th Dec 2012 17:12

Thanks but....

I am none the wiser. I wonder if David Winch or other experts are able to help?

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11th Dec 2012 17:40

I think

This seems a rather convoluted and hypothetical question!

You should consider who you would be reporting and for what.

Has the individual been dishonest?  Have they committed a crime?  Have they obtained a benefit which they know or suspect to have been derived from a crime?

If the ONLY benefit is that they have not been made subject to a penalty then I would be unenthusiastic about describing that as money laundering - as the penalty does not exist.

I would suggest that convoluted and hypothetical questions could lead you to the conclusion that you ought to be reporting every one of your clients for something or another!  A sort of 'money laundering hypochondria' could set in.


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By John R
11th Dec 2012 19:47

Thank you David and I am sorry if my question was convoluted. Having re-read it you could be right!

I note your view that there is nothing reportable by failing to notify the Revenue of the CIS failures if all that has been saved is the penalty. However, what do you think about the tax which the client should have deducted and paid over to the Revenue? The client has not gained anything but is it in fact permissible to offset the tax saved against the overpayment to the sub-contractor, for the purposes of establishing whether there is criminal property?

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13th Dec 2012 20:53

You said it
"The client has not gained anything".
So, if you are considering whether you have a suspicion that the client has engaged in money laundering you need to ask yourself what 'property' (in the legal sense, meaning an asset of any description) he could be suspected of laundering. Seems to me that the answer to that is "none".

You might then move on to the question of whether the sub-contractors might be engaged in money laundering. But then you need to ask yourself whether you suspect they may have been dishonest. If the answer to that is "no" then you don't suspect them of money laundering either.

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