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Client accusation about all UK accountants working for HMRC

I had a really strange letter from a (now former) client this week that is a UK born and resident IT Contractor of Indian descent working for a finance house in Canary Wharf.

As is our wont, a few months ago he had come to me with one of those ludicrous 'man down the pub' schemes, whereby he was going to continue to operate his UK company as previously, but instead of paying the UK's 'extortionate' corporation taxes and such, he would sub-contract an offshore company based in a tax haven to undertake the actual work (actually performed by him at some bank in Canary Wharf) and then the offshore company would invoice the UK company extracting the majority of profits tax free and just paying him enough to live on.

He justified this as being 'all right' as he was going to retire at 50 and live in India and he needed it to setup his retirement fund.

After looking at him aghast  for about 30-seconds I pointed out to him why this was probably a bad idea in that it was a fairly obvious attempt at tax evasion which would (once discovered by HMRC) be subject to full repayment of unpaid tax, a penalty of up to 200% of the tax due, interest and the possibility of a jail sentence for willful tax evasion. I then explained about things like SOCA and Money Laundering, etc.

From that point onwards the meeting petered out and it wasn’t raised again.

Then out of the blue last week, I received a letter from him effectively saying that he was unhappy that he was paying me a lot of money, but that if he did anything wrong I was going to ‘report him to the taxman” and accusing me of working for HMRC rather than the guy who was paying the bill.

Since he could no longer ‘trust any UK accountant’ he was arranging to have his brother-in-law who is an accountant in Pune, India deal with his affairs and that he would make arrangements in the coming weeks.

He’s paid his latest bill, so there is no concern over fees, but I’m just wondering what (if anything) I should do from here. He’s within his rights to get anyone to do his accounts if he feels they are appropriate and qualified, but I suspect the real reason is that he would like to go ahead with his crackpot scheme and is using the Indian accountant as a way to bypass SOCA and Money Laundering Regulations.

I don’t really want to report this unless I have to as if HMRC come knocking it will be pretty obvious that I was the one that made the report; certainly I have no evidence of anything untoward, just a sneaking suspicion.

Equally, wouldn’t an Indian accountant be bound by equivalent legislation over there, even if he was preparing accounts for a UK based company?

Thoughts and comments please (after you’ve stopped laughing)... 

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11th Feb 2012 20:21

One for Mr Winch

No doubt David will be along shortly to confirm this, but I can't help thinking you don't KNOW that he is actually going to carry out this highly inventive approach to running a business. In fact, the way he comes across in your tale makes me think that he has actually come up with an equally ludicrous idea but decided you will shoot that down in flames as well. This new ludicrous idea may or may not (but more likely may) also be something that won't work under UK tax law but you know nothing about it or whether it is actually going ahead.

Given you don't have knowledge from your work in a regulated sector of him actually doing anything wrong, I think you're safe from having to make a report.

Surely if he is an IT contractor he could actually do the work in the tax haven, (assuming software rather than hardware support) thus completely avoiding the issue. I can't believe you didn't suggest this to him. :-P

 

 

 

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12th Feb 2012 10:32

There is some truth within the claim that ...

... "if he did anything wrong I was going to ‘report him to the taxman” and accusing me of working for HMRC rather than the guy who was paying the bill. "

This is Britain, as fashoned by the Labour Party. Considering liberal Dave, I don't think it will change.

 

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12th Feb 2012 11:10

Reporting (not)

It does not appear to me that you have grounds to suspect that this person has obtained an advantage by dishonestly evading taxes (which could be reportable).  At most it seems that you suspect that he may be intending to do that in future (but the mere intention to do it is not reportable).

Remember it is 'money laundering' which is reportable and money laundering can only occur where a benefit has already been obtained from criminal conduct of some sort.  This person is not in that position.

As far as money laundering law in India is concerned I am not an expert but I understand there is legislation in India relating to the prevention of money laundering.  However I do not believe 'money laundering' is as widely defined in India as it is in the UK.

In particular in the UK handling the proceeds of ANY crime can constitute 'money laundering'.  In some other jurisdictions handling the proceeds only of SPECIFIED crimes, or crimes of a SPECIFIED value, amounts to 'money laundering'.  I believe in India there are lists of crimes specified for this purpose (and the list may not include evasion of income tax).

In some jurisdictions it is also necessary for the 'laundering' to have been undertaken for a specified PURPOSE for it to constitute a 'money laundering' offence - but there is no such restriction in the UK.

'Money laundering' as defined in the UK need not involve 'money' and need not involve 'laundering' either, for example the mere possession of a stolen motorcycle has been held to be a 'money laundering' offence by the Court of Appeal (see this case).

David

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12th Feb 2012 11:07

Ethics & morals

I think I am in the wrong job.

I, personally, think that people who gain (in money or lifestyle) from living or working in the UK should pay UK tax. If they don't want to pay UK tax then they should 'go elsewhere'.

The government ...  any government ....  does not have any influence over my thoughts and ideas.

@frustrated ... what else could you do? I think it is quite offensive when clients expect us to break the law for their benefit and then have the nerve to complain when we refuse.

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By 3569787
03rd May 2016 17:59

There is some truth within the claim that ...

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By Flash Gordon
12th Feb 2012 14:17

Ethics & morals continued

Well personally I get so p****d off with people taking the mick and avoiding paying the tax that legally they are obliged to pay like the rest of us that I'd quite happily 'work for HMRC' and would report them anyway!

If the rules say you owe tax and there are no legal ways of reducing it then tough. Sounds to me like the OP's ex client is going to try it on by getting an overseas accountant and given that HMRC seem unable to pick up the most blatant tax evaders then I'd give them a pointer. If he hasn't done anything wrong then they won't be penalising him.

Tax does involve ethics and morals when someone decides they're not going to play by the rules. If everyone paid their due, MPs didn't fraudulently claim 'expenses' and so on then the country wouldn't be in a mess and maybe everyone would be better off, not just the cheats.

Tell you what Frustrated, PM me the details of your ex client and I'll report them! Saving the universe comes in many different forms :)

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13th Feb 2012 09:00

I'm not going to cause unncessary trouble

Flash Gordon wrote:

Tell you what Frustrated, PM me the details of your ex client and I'll report them! Saving the universe comes in many different forms :)

Sorry Flash, but I think I'm going to follow the advice from David Winch, in that my only suspicion is of possible future misconduct, not an actual reportable action.

I've had problems before with unhappy clients leaving abusive telephone messages for my wife and that is not an experience I have any wish to repeat. Not saying this chap would of course, but better to be safe than sorry.

If he wants to follow through this sort of thing, which I expect would involve large currency transfers between the UK and India, he's going to get found out pretty quickly as we all know that these things are monitored and reported to HMRC.

Time to let him stew in his own juices I think. I've already signed the letter confirming termination as per original letter of engagement and that will go out in today's post.

To be honest, although I am always sad to see a client go (and perhaps feel a certain 'hard cheese' on my part), he was taking advantage of all of the benefits of running a limited company (home office rent, husband and wife 50% shareholding, wife's salary for bookkeeping and ancillary duties, low PAYE + Dividends), but he still objected to paying out £18,000 per year in corporation tax.

Personally, I think he was getting a real sweet deal, still some people are never happy and when he gets caught by HMRC there will be hell to pay.

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13th Feb 2012 10:53

@Frustrated - don't feel too bad!

In my experience, they may be wealthy, but they will never be truly happy, no matter how much they cheat and rip-off the UK ..... because they are greedy,and they will never have 'enough' ... and like Flash, I hope he gets caught and also gets sent to live & work in India and the UK jobs are left for people who appreciate the UK and actually contribute to society by paying tax.

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15th Feb 2012 11:11

system set up for them.

There is nothing you can do, perhaps you could have told him that if his UK income is low he could claim all the benefits as well.

Interesting though, transfer pricing perfectly acceptable for small companies, but I wonder whether he is going to claim the remittance basis and pay £30k p.a.

You don't really want this sort of client but it does make you despair nobody wants to pay any tax but are the first to complain about the NHS etc.

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15th Feb 2012 11:52

Perhaps its time for

a new client ethics questionaire that they complete prior to appointment.

And risk profile questions.

Then you can tell them, if they fail, that they were unsuitable to receive the huge benefits of your advice.

Save an awful lot of wasted time ? Then again perhaps the dishonest would just lie on the form anyway.

or

You could recommend a dodgy firm as HMRC will not do anything until the boil is so large it has reached bursting point. (and then it will only be a memo)

 

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15th Feb 2012 12:08

These are the rules set down by parliament and enforced by HMRC

The Black Knight wrote:

a new client ethics questionaire that they complete prior to appointment.

And risk profile questions.

Then you can tell them, if they fail, that they were unsuitable to receive the huge benefits of your advice.

Save an awful lot of wasted time ? Then again perhaps the dishonest would just lie on the form anyway.

or

You could recommend a dodgy firm as HMRC will not do anything until the boil is so large it has reached bursting point. (and then it will only be a memo)

However, this guy has been with me a few years and when he came he was a full service client (having previously been an employee of IBM Consulting), requiring company setup, help with PAYE and VAT, bookkeeping, the lot.

It was only over the years, usually when having to write the big Corporation Tax cheque, that the whinging started and increased every year - "£18,000 - you're asking a lot from me" (as if I was the one getting paid), "Can't we get this reduced a bit"...

"These are the rules set down by parliament and enforced by HMRC" - simple fact.

If you don't like it go live in Somalia where the taxes are zero.

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15th Feb 2012 12:06

Are you not tipping-off which is an offence

Two issues here

 

If the scheme is designed by a professional then I suspect all obvious loopholes are covered. Once a client of mine came to me and said he was offered a job on a subcontracting basis and he was asked to do certain tasks. On the face of it looks like a simple IR 35 issues but when I read he agreement it was clear that my client has to work on a module and he has to arrange a team of developers who will be vetted by the ultimate client because of security reasons and he is responsible for his teams remuneration. The point is sometime client do not  go through the details, details which are important to swing the case in either direction.  

 

Secondly it looks to me you are committing an offence of tipping-off  when you say “I then explained about things like SOCA and Money Laundering, etc.” and the client response “he was unhappy that he was paying me a lot of money, but that if he did anything wrong I was going to ‘report him to the taxman” and accusing me of working for HMRC rather than the guy who was paying the bill.”

 

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15th Feb 2012 12:20

Reporting all of our clients for their notional idiocies?

asimmalik78 wrote:

If the scheme is designed by a professional then I suspect all obvious loopholes are covered.

Nope - this was the usual 'mate down the pub' type approach. About as well thought out as a 1940's pulp fiction novel.

asimmalik78 wrote:

Secondly it looks to me you are committing an offence of tipping-off.

If he'd actually done anything that I was aware of, then there would have been no question that I would have reported the matter and not discussed it with him any further.

However, when I discussed it with him it was along the lines of "why can't I just..." type of speculation.

If we were to report all of our clients for their notional idiocies we would do nothing but filling our MLR and SOCA reports.

 

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15th Feb 2012 12:38

Tipping off (not)

The rules on tipping off have been amended very significantly since PoCA 2002 was first enacted.  The old s333 has been repealed and replaced with ss333A - E.  The position is that it is an offence (in certain circumstances) to disclose the fact that a report has been made internally to the firm's MLRO or externally to SOCA (or to the police etc) of suspected money laundering.  It can also be an offence to prejudice (i.e. cause damage or detriment to) an official investigation (see s333A(3) and s342).

In this case no report has been made and no official investigation is underway or in contemplation.

Therefore the issue of tipping off simply does not arise here in my opinion.

David

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15th Feb 2012 13:38

"he would sub-contract an offshore company based in a tax haven"

Didn't Rangers FC try this?

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15th Feb 2012 14:25

Quick Mod Note

I've had to remove a comment from earlier in this thread that contained inappropriate material and was in violation of the community rules. As a result of this, replies to this comment have also been taken down. Apologies for any inconvenience caused. If you have any queries, please feel free to contact me via PM and I'll do my best to clarify any points.

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15th Feb 2012 14:38

Reporting

Having just done a Money Laundering update cousre this week, my understanding is that you have to report if you have a suspicion. Suspicion is somewhere between actual knowledge of a crime and mere speculation. It's up to you to decide if a reasonable accountant would have a suspicion or not. If they would, report. If not, don't report

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15th Feb 2012 15:03

We're talking about a difference between suspicion / speculation

phillipharris wrote:

Having just done a Money Laundering update cousre this week, my understanding is that you have to report if you have a suspicion. Suspicion is somewhere between actual knowledge of a crime and mere speculation. It's up to you to decide if a reasonable accountant would have a suspicion or not. If they would, report. If not, don't report

Reasonable suspicion of something actually having taken place, would be reportable, I accept.

However, that is not the case here. I suspect something might take place at some point in the future (which is pretty much a dictionary definition of speculation)

Since I have no evidence of anything ACTUALLY having taken place, but suspect something might possibly take place in the future, I don't believe there is sufficient to merit further action on my part.

As he is no longer a client, I'm putting this firmly in the "Somebody else's problem" category.

 

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15th Feb 2012 15:30

Reportable suspicion (not)

@phillipharris

Hopefully the course you attended will have made clear to you that you do not have to report suspicion of 'a crime' but that (in England & Wales at least) you have to report if you have a suspicion of either money laundering or a terrorist property offence.  In this case there is no suspicion of anything related to terrorists, so we are left with money laundering.

Before there can be any money laundering there has to be some other crime which has generated proceeds (either in terms of money, or some other asset, or a liability evaded).

As yet there has been no benefit from crime.  So there can have been no money laundering.  So there can be no suspicion of money laundering which might trigger an obligation to report.

David

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15th Feb 2012 16:10

Quite right

But interestingly a police informant would tip off a robbery or drugs deal before it happens and receive clean cash for doing so.

Is it not about time we had the same rights as criminals who inform ? The tax free cash would be very nice thank you. Especially if you are gifted (as we are) as being able to see into the future.  Don't call me Shirley, Kassandra will do !

Q. Do you have a suspicion that it might have happened a year later after the tax return filing date ?

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By cfield
15th Feb 2012 16:21

Best not to mention SOCA

It's bad enough having to be unpaid secret police for HMRC without telling clients about it too. I can't think of anything more likely to drive clients away than the thought they cannot trust you. They'll end up in the arms of dodgy firms who don't worry about that sort of thing.

One quick tip. If you do have to file a SOCA report, don't file the confirmation e-mail in the same folder as all your other stuff for that client. I had to file an MLR report on a client for a small VAT error he hadn't yet "got around" to adjusting for on his returns. 

I forgot all about it, but when he was in the office last week we were skimming through our e-mails over the last year and there, to my horror, was one titled "SAR On-line Reference....".

Fortunately i managed to distract his attention in time before he had a chance to say "What's that?"

Chris

 

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15th Feb 2012 16:56

The problem here is that he CAN bypass the regulations

cfield wrote:

It's bad enough having to be unpaid secret police for HMRC without telling clients about it too. I can't think of anything more likely to drive clients away than the thought they cannot trust you. They'll end up in the arms of dodgy firms who don't worry about that sort of thing.

But this is exactly the problem here. Since we ARE bound by the regulations and WILL report our clients if required to then what he is saying about not being able to trust me (although not his reasons for saying it) are completely spot on.

Equally, given his circumstances, his response is entirely logical - to go to someone who is NOT bound by the same statutory regulations, namely his Indian accountant.

You can be certain that he doesn't work for HMRC.

I'm not so sure that I can say the same.

:O(

 

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15th Feb 2012 16:26

Poor communication

I'm not surprised the client was upset. He likely felt he wasn't treated with due respect. He came in with an idea that, in his mind, was a legal and above-board way to reduce his company's tax payments. The response he received would have felt like he was being accused of contemplating criminal activities by someone appointed to be HIS trusted advisor.

It would have been sufficient to explain why his idea wouldn't fly on technical grounds and then have a chin-wag on ways of reducing tax that were workable like corporate pension contributions. 

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15th Feb 2012 16:31

@Chris

What an awful world we live in.

Still by filing a report you have guaranteed that no action will be taken. So I think we need to look at things in a positive light !

It's when clients walk in when you are half way through doing the report that's fun. Sort of got used to it now but it still makes you feel dirty.

Everyone's a criminal, now ain't that the truth.

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15th Feb 2012 17:02

@The Black Knight

In answer to your final paragraph my own view would be that you do not have sufficient grounds to file a report one year later.

David

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By vstrad
15th Feb 2012 20:05

I was aghast!

Slightly off-topic but:

"As is often our want" - I think you'll find that should be "As is our wont".

"After looking at him a gasp" - don't you mean "aghast"? Or even "agape"?

Small details perhaps but it can undermine an air of professional authority when we get such things wrong.

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16th Feb 2012 09:17

A Gape

No thats' something different altogether.

Try as I might, I cannot see those words above ?

Pray tell ?

Its the modern way, a cross between texting and emailing and the original bad grandma.

You only need get the first and last letter right these days and apparently it still reads the same as the correctly spelled word or at least what ever word you were thinking of or would like it to be.

:;^"!*., (some spare punctuation for the uses thereof  (LOL)

I am only teasing :-)

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By cfield
16th Feb 2012 10:59

Aghast and agape

Yes I spotted that error too and thought, not for the first time, how good grammar/spelling seems to be a dying art these days.

Aghast means to be shocked in a horrified way, which probably sums up how the OP felt at the time, although not entirely surprising that clients come up with things like that. My clients often ask me about offshore companies, but more in a hopeful way than with any concrete plans to actually use them.

Agape means to stare with your mouth open, as if catching flies. Being aghast may well cause you to be agape, so they are not mutually exclusive, but you can be aghast without being agape too, and vice versa (for example, if you are daydreaming or surprised in a non-aghast way).

Perhaps I should have been an English teacher rather than an accountant.

Chris

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16th Feb 2012 13:04

Words, schmords

Agape is also a greek word meaning love, often used in a Christian context (see http://en.wikipedia.org/wiki/Agape).

Somehow I don't see the OP feeling much love for the guy,  The man's a greedy fool and in the OP's shoes I'd have be inclined to provide professional clearance along with a small explanation of where the UK law lies on income generated in the UK.  I'd also be very tempted to copy this to the Revenue, but wouldn't have got beyond temptation.

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16th Feb 2012 13:32

Alright - I give in

I've changed the original question, are we happy now?

This is not a papal bull, but a question posted on AccountingWeb. I accept the point about maintaining a professional approach, but would point out that English is not my first language.

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16th Feb 2012 16:34

Don't worry about it

For the first 10 years of my life, the rest of my family used to pronounce the country of Egypt as Egg-wiped.  Just an in-house joke and we used to play Risk a lot - but certainly up until I went to secondary school I used to think that was the right way to pronounce it.

And I'd like to think that AWeb was utterly forgiving of bad typing, spelling etc.  We ain't talking to the world here.  Professionalism is for the end-user, not for a (knowledgeable) pub-chat.

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17th Feb 2012 15:28

The GoodEnglish Professor continues his campaign:

MarionMorrison wrote:

 We ain't talking to the world here.  

Oh yes we are.  [Enter the pantomime villain?]

I only discovered this site (it's not www.Conjunctivitis.com - as that's a site for sore eyes), by a member of the public.  So watch your "Ps" and Qs" before your post anything.  Keep standards up, please.

 

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17th Feb 2012 16:20

"your"?

Before "your post anything" or before you post anything"? Please clarify as your meaning is unclear due to the poor spelling.

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17th Feb 2012 17:08

Keeping standards up

The last few messages on this site have left me aghast and open mouthed with disgust. A fellow accountant asked a reasonable, professional enquiry and all you can do is be picky and critical of typing errors.

Grow up. Let's help each other. If you have never typed a single letter wrongly then I stand in awe. We are supposed to be highly trained professionals but how quickly have a lot of you descended into childish stupid remarks?

 

 

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