false tax returns

 The key to this is how

 The key to this is how strong your suspicion is.

If you are reasonably convinced then it is a money laundering issue and this needs to be reported.  It is also worth considering reporting these suspicions in the professional courtesy letter.

Without proof the police can’t do anything, and even with proof I can’t imagine the police would want to get involved.

My knowledge on relevant laws isn’t great, but withholding your client’s books is effectively withholding their property so I would suggest you return these to them.

Hope this helps

Will

Don't report to HMRC

You must not disclose any information to HMRC without your client's consent (which obviously you do not have).

If you have a suspicion of tax evasion from which the client has obtained a benefit (i.e. the tax evaded has passed the normal due date for payment) then you are obliged to submit a Suspicious Activity Report to SOCA under s330 PoCA 2002 / MLR 2007.  They will then make the information available to HMRC (which - unlike your doing so directly - is not legally a breach of client confidentiality).

His books are just that - HIS books.  So return them to him.

David

Whatever happened to client confidentiality?

I find this (and similar threads along the lines of "I think my client is fiddling his taxes, should I shop him/unlawfully hold his books & records etc") absolutely astonishing!

If you (and I mean this generally, not specifically) don't think your duty of care to your client overrides nebulous and poorly drafted "AML" regulations then, with respect, you are in the wrong business/profession.  

The solution to the question raised is very simple - tell the client you no longer wish to act for him.

You are engaged as his book-keeper or accountant, not his father confessor.  He provides you with business/financial records, you prepare his accounts (which I assume he signs).  If you are not happy to submit them, then don't, and return the records to the client (along with working papers if he has paid you).

Unless the client has specifically told you (or you have discovered incontrovertible evidence) of material tax evasion then you have no business either snitching on him or unlawfully retaining his property (assuming you have been paid for work done).  

The self-righteous tone adopted by so many truly sickens me!  Hands up who has ever paid the milkman, or window cleaner, or handyman or cleaner in cash (not forgetting buying from ebay or a car boot sale without a proper receipt) - oh, most of us then. 

I wonder how many client engagement letters actually spell out "if we think (whether evidenced or indeed justifiably or not) you have not disclosed ALL your income to us or "padded your expenses", we are likely to report you under Money Laundering Regulations to the Serious Organised Crime Agency" ?   (whose remit according to their own site is : "SOCA tackles serious organised crime that affects the UK and our citizens. This includes Class A drugs, people smuggling and human trafficking, major gun crime, fraud, computer crime and money laundering".)

I bet not one! 

@Hansa

With respect, under UK law materiality is not relevant nor is it the case that there needs to be "incontrovertible" evidence.

The obligation is on the accountant to file a report with SOCA where the accountant "knows or suspects or has reasonable grounds to suspect" money laundering as a result of information which has come to him in the course of his work.  (It is irrelevant whether the person suspected is, or ever was, a client.)  Where tax is dishonestly evaded a money laundering offence is an inevitable consequence.

In relation to the meaning of "suspects" the English Court of Appeal has held that: "It seems to us that the essential element in the word "suspect" and its affiliates, in this context, is that the defendant must think that there is a possibility, which is more than fanciful, that the relevant facts exist. A vague feeling of unease would not suffice. But the statute does not require the suspicion to be "clear" or "firmly grounded and targeted on specific facts", or based upon "reasonable grounds". "

The Court added that: "using words such as "inkling" or "fleeting thought" is liable to mislead". In particular they considered that a person who temporarily held a suspicion but honestly dismissed it from their mind upon further consideration should not be liable to be convicted.

The legislative requirements in other countries are different.

David

Response to Mr Winch - Practical v Legalistic

We are clearly looking at this from two different angles.  As practically any Criminal Law solicitor will confirm, the result of much of the Blair government's legislation was to turn the UK into a Police State in all but name.  Eventually, another Lord Denning will start to challenge some of the more outrageous legislation - or possibly even the maligned ECHR!  For now, we (and particularly those subject to AML reporting requirements) should try to behave as the "reasonable man on the Clapham Omnibus" might, rather than agents of the STASI (sorry, SOCA) 

I therefore look at the issue in terms of what I consider to be reasonable and practical, not what the letter of the law might suggest.  You are looking at it from a largely legalistic viewpoint.(and in relation to my posts) you are picking up sentences or phrases and applying the law to them.  I am not a barrister and this is not a legal forum.  Having said that, I have no doubt that you are technically correct.

What my earlier post tried to say was

* The original poster implied that she had a feeling her client might be up to no good but did NOT suggest that this feeling was anything more than fanciful.  Thus she had no cause to reasonable believe that tax evasion was planned or had taken place.  Clearly her relationship with her client had already broken down (and with her apparent attitude I'm hardly surprised).  Who is to say the client hadn't won £50k on the gee gees? inherited money etc. ? 

* She quite unlawfully refused to return client records (putting her legally in the wrong).

* She wanted to report him to HMRC (clearly a breach of client confidentiality) 

* In those circumstances, and with nothing more than a fanciful suspicion, she should simply "drop" the client.

* My penultimate comment was that practically everyone - even you probably - have at some point been complicit in tax evasion (albeit in most cases in a de minimis and probably passive way).  By your lights we should perhaps all file reports on ourselves and volunteer for prison time! ... Clearly not, so an application of common sense is required, and constant reference to ML regs does not engender (I contend) a common sense approach.  

Whatever a strict interpretation of the rules might say, the sensible (rather than legalistic) reaction to a possibly "dodgy" client is to show him the door. 

* My final comment was with regard to terms of engagement being silent (in plain English) with regard to in just what circumstances a suspicious transaction report might be filed - I think if the average client realised that around a quarter of a million such reports are filed each year, mostly on little more than fanciful supposition, people would learn how to use simple accounting and tax return packages themselves.   My own view is that engagement letters should spell out EXACTLY how far client confidentially extends ... about as far as the telephone/computer keyboard as far as I can see.  We all used to joke about how accountants in (High Tax) countries like Germany, France, Italy were little more than agents of the state but the UK (as always) has surpassed itself not just in passing the legislation, but enforcing it with the aid of "professional" informers!

RIP Britannia! 

Law and justice

Over recent decades legislation has sought to limit the discretion of judges in our criminal courts.  They also now have the benefit (?) of numerous guidelines intended to ensure consistency and fairness.

As a result it might be said that our criminal courts have shifted towards dispensing the law in accordance with statute, precedent and guidelines - and that the concept of justice has been pushed into a subsidiary role.

Sometimes law reflects commonsense, but often it does not.

Furthermore we have legislation which uses everyday words but defines them to mean something rather different.  So that, for example in PoCA 2002, a defendant's "benefit" is not the amount by which he has benefited from his crime, his "available amount" is not the amount he has available, and, of course, "money laundering" is something which may have nothing to do with either "money" or "laundering".

There are, as you say, over two hundred thousand Suspicious Activity Reports filed every year.  The bulk of these are from banks, building societies and the like.  The basis of the suspicions may be nothing more than an unusual transaction, such as a significant cash deposit.  The likelihood is that a high proportion of reported suspicions would prove (if investigated) to be misplaced.

But that is the legislation and it is best that we are aware of it.

The sun set long ago on the British Empire - welcome to our brave new world!

David

Full circle i.e. common sense v the "regulations"

Mr Winch's response effectively confirms my view (though using less emotive language) that the UK has, in the last 15 years evolved into a quasi police state. (CCTV everywhere, double jeopardy, ID cards (nearly), AML regs ... the list is endless)

The issue in my view is NOT whether the law is as Mr Winch describes it (it is), but rather will the professions (and certain others) "roll over & die" ... ie conform with every purported requirement 

I say no.

Use common sense in your dealings with your clients ... or get out of the profession.

Laws only work if they are generally accepted as reasonable (doing 75mph on the motorway? not practising archery every Sunday (sorry that one HAS now gone), practice of witchcraft etc etc).  If laws are not considered "fair" they fall into disrepute and are ignored.  There many laws on the statute books for which no-one has ever been convicted! 

By filing endless reports the profession perpetuates bad legislation and brings itself into disrepute. Sooner or later, the public will cotton on -   just look at the reputation of bankers now compared to 25 years ago (different reasons, same result - perceived as unprofessional & self serving). 

I am no anarchist but the system would collapse if either

1. AML reports were filed on ALL clients without exception (that would be fun, 20 odd million reports a year!) ... justification "Well maybe the client is suspicious, so just to be on the safe side ...) 

or

2. No-one filed them except where common-sense dictated they really should (lets see a prosecution for non filing where no well grounded suspicion existed).

... If you don't like the client, get rid of him rather than behaving as a police informer.

Remember it is the client, not SOCA paying your fee notes!  Only file where absolutely justified. .. and stop playing the role of the CPS (they get paid for it, you don't) 

Switzerland, nice

@ Hansa

Your business address and a cursory glance at your website tells me more than I need to know about your angle on this.

However, it is my belief that most clients of most accountants are not wealthy, in general they want to pay their fair share of taxes and do not wish to expose themselves to unwelcome attention from authorities. Most accountants wish to help them to do this without recourse to arguing about the fine detail of legislation but, where there is such doubt, with consideration of its intent.

Duty of care to clients v obligations to the state

Mr Partridge suggests that generally, clients "want to pay their fair share of taxes" . . . I fundamentally disagree with the basic premise of this statement - in particular the words "fair share" - and can do no better than quote from two well known tax judgements (my emphasis)

“Every man is entitled if he can to arrange his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure that result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax”
(IRC v Duke of Westminster [ 1936 ] AC1 (HL)).

and

"Over and over again courts have said there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands; taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant..."
(United States Judge Learned Hand in Commissioner vs. Newman. 159 F.2d 848 (1947))

Fairness does not come into it; and indeed smacks of socialism.  Every accountant worth his salt should seek to minimise, to the maximum degree possible by giving appropriate advice,  the taxes payable by his client(s).  As I said earlier in this thread, where a client asks too much of the accountant, or if his alleged activities are unacceptable or distasteful to the accountant, the two should simply part company. 

This thread really concened client confidentiality rather than taxes per se, and I note that no-one has responded to my (several) observations concerning client enagement letters, and in particular whether they should spell out (in plain English)  under what circumstances the client might find himself being "reported". This is NOT tipping off as this would precede information being exchanged and thus "suspicions" being formed - indeed a paragraph explaining "tipping off" should also be included. ...

To do otherwise is mis-representation by omission I believe

I have to admit it

I don't act for the Duke of Westminster. If he comes knocking on my door, I will be happy to refer him to Hansa.

It's a matter of degrees

There is avoidance which is legal, and evasion, which is not.

Concealing income is evasion. I am pretty sure that accountants could not claim client confidentiality as a reason to further conceal the crime, unlike lawyers, who I think could and, from a personal point of view, I would want them brought to justice and I wouldn't want to just hand them over to another unsuspecting, but honest, accountant.

Hopefully, David will clarify the situation.

The Duke of Westminster's case was decided before the Second World War.  Times have changed.

In the rather more recent case of Commissioners of Inland Revenue v. McGuckian [1997] UKHL 22 in the House of Lords in 1997 Lord Steyn said:

"While Lord Tomlin's observations in the Duke of Westminster case still point to a material consideration, namely the general liberty of the citizen to arrange his financial affairs as he thinks fits, they have ceased to be canonical as to the consequence of a tax avoidance scheme.  Indeed, as Lord Diplock observed, Lord Tomlin's observations tells us little or nothing as to what method of ordering one's affairs will be recognised by the courts as effective to lessen the tax that would otherwise be payable . . . The new development was not based on a linguistic analysis of the meaning of particular words in a statute. It was founded on a broad purposive interpretation, giving effect to the intention of Parliament. . . .  And in asserting the power to examine the substance of a composite transaction the House of Lords was simply rejecting formalism in fiscal matters and choosing a more realistic legal analysis. Given the reasoning underlying the new approach it is wrong to regard the decisions of the House of Lords since Ramsay as necessarily marking the limit of the law on tax avoidance schemes."

Or to put it another way, what the Duke of Westminster did in 1936 would not save any tax if it were to be repeated today. If the Duke's case were reheard before today's Supreme Court judges (but based on the tax law as it was in 1936) the Duke would lose, not win - because today's judges would interpret the tax law to have the effect intended by parliament and not just the literal effect of the words used in the tax Acts.

Of course even since 1997 there has been considerable further legislation aimed at unearthing and then preventing the (legal) avoidance of tax.

David

A matter of degree?

Shirley

It's not a matter of degree.  Dishonesty in tax matters is criminal tax evasion.  Where there is no dishonesty there is no tax evasion (although there may be tax avoidance).

However it was interesting that Barclays was recently persuaded to suffer an extra £500m in tax which it had intended to avoid by contrived arrangements which, at the time, would have been perfectly legal.

David

Client's consent

Bev

The procedure is for you to seek the client's (written) consent for you to pass on to his new accountant all relevant information.  Once you have that you can tell the new accountants what they need to know (including your concerns).

If the client does not give you unrestricted authority to disclose information then you tell the new accountant that the client has declined to authorise you to disclose all relevant information.  The new accountant is supposed to then decline to act for the client.

If the new accountant goes ahead in these circumstances then at least they should be aware of the fact that there is something you are not able to tell them.

By the way, if you have made a report to SOCA I would not tell the new accountant that (i.e. that you have filed a report).  But I would tell them (if you get the client's authority) all about your concerns and the reasons for them.

David

How to deal with it

Give him his books.

Go on a money laundering course and follow the instructions on the box...

Well you should have been on one anyway, Its an ICAEW requirement ( and the Law)

Hear, hear Tom

 I agree with Tom 7000, and I can't believe that the question was ever asked on a public forum.

I guess, with hindsight, it probably was a good idea that you did, but it's not rocket science!