Dilema - VAT threshold exceeded 2006/07 - what action should I take?

Dilema - VAT threshold exceeded 2006/07 - what...

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Hi I am in a quandry and need advice please / confirmation of what steps I should take .. ?

The new husband of an existing long term client (of whom I respect) approached me for help with completing his accounts.  The last accounts he had prepared were 2007/08, he is a sole trader running a few different businesses.

I arranged a meeting last week with him, during the course of the meeting he showed me the 2007/08 accounts - which had been prepared by an Accountancy company.  The accounts showed turnover significantly in excess of the VAT threshold and also wages.  When I asked about PAYE, he explained that the wages were paid in cash and that he did not want to run PAYE, when I pointed out that he should have been VAT registered he said that his old Accountant had told him that ..

If he were not the husband of a client I would discreetly decline to act for him and maybe file a SAR?

I do not think the wife is aware of the VAT/PAYE issue and just thinks that the accounts are late and is pushing her new husband to get things up to date. 

I haven't issued a L Of E yet or taken any action ... what would you do in this situation ?  I do not want to represent dishonest clients.

Thanks

Replies (10)

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David Winch
By David Winch
29th Mar 2011 22:21

SAR issue

You only need to consider filing a Suspicious Activity Report (SAR) with SOCA under the Money Laundering Regulations 2007 / s330 Proceeds of Crime Act 2002 (or in Scotland s31 Criminal Justice and Licensing (Scotland) Act 2010) if you consider that he has been dishonest.

He has been dishonest if BOTH (i) he has done something (or failed to do what was required) which an ordinary and decent person would consider dishonest, and (ii) he himself realises he has been dishonest by that standard.

However by failing to act upon the previous accountant's advice about VAT registration and paying wages in cash to avoid PAYE and apparently failing to file tax returns since 2007/08 - you may well suspect that he has been (knowingly) dishonest.

In effect it looks very much as if he may be guilty of tax evasion (both in relation to VAT and PAYE - and perhaps his own income tax too).

So the next question is, "Has this information come to you in privileged circumstances?".  It will have done if (a) the client approached you for legal advice as to how to put his affairs in order, and (b) you are a member of a body which meets the specifications in s330 (14) PoCA 2002.

It sounds as if (a) it satisfied.  This is not something you have discovered in the course of routine work - in effect he came to you and said, "I have a problem, can you help me sort it out?"  Since his problem involved breach of the law his request was, in effect, for legal advice (as distinct from routine compliance work, which does not amount to legal advice).

If the information did come to you in privileged circumstances then you should not report it to SOCA (even if ultimately the client does not accept your advice and carries on breaking the law).

As to whether you should agree to act for him, that is an entirely separate question which I shall leave for others to comment on.

David

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By JWB
30th Mar 2011 09:45

Advice

Thank You

So I can act for the client but what is the best way to proceed - my advice would be that he has exceeded the VAT threshold and that he should register for PAYE asap.

Do you think it is ok to put that in the accompanying letter to the L of E ?

thanks

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Euan's picture
By Euan MacLennan
30th Mar 2011 12:14

Cart before horse?

As you have said that you would not act for him if he declines to register for VAT and PAYE, there is no point in sending a letter of engagement.  Write an initial letter to him confirming why he must register for both VAT & PAYE and saying that if he is not prepared to do so, you cannot act for him.

Do not be soft because you like the wife.

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Image is of a pin up style woman in a red dress with some of her skirt caught in the filing cabinet. She looks surprised.
By Monsoon
30th Mar 2011 12:55

Establish intent

Write an initial letter to him confirming why he must register for both VAT & PAYE and saying that if he is not prepared to do so, you cannot act for him.

Do not be soft because you like the wife.

 

Posted by

Euan MacLennan

on Wed, 30/03/2011 - 11:14

I think Euan has hit the nail on the head. Find out his stance - if he is happy to do things right, great, you may have a new client. If he won't play it by the book, you don't want to act for him.

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By pauljohnston
04th Apr 2011 16:03

May I suggest you go further

that is send him the documents to register for VAt and ask him to return them to you signed.  WIth regard to PAYE a letter from him to you asking that the business be registered.

What others may have overlooked is that you have a good client whom you dont want to loose.  By doing the above if he does not confirm you have proof, and from my experience his wife may just press him to do as you request.  Once you have the forms you can issue T OF E

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By petestar1969
04th Apr 2011 16:31

I agree with everything David says, but...

if you take the guy on and tell him again to register for VAT and PAYE and he still refuses I would consider a SAR.

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By JWB
04th Apr 2011 16:39

No longer over VAT Threshold

Thanks for all the good advice.

Although his business was significantly in excess of the VAT threshold on the 2006/07 and 2007/08 accounts - The business is no longer above the VAT Threshold .. Does this have an impact on your answers?

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By andypartridge
04th Apr 2011 17:05

No longer above the VAT threshold

But is it under the deregistration threshold?

-- Kind regards Andy

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David Winch
By David Winch
04th Apr 2011 18:27

@petestar1969

If you received the information in privileged circumstances then you should not report it to SOCA (even if he refuses to accept your advice to register).

David

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By Brian Ogilvie
07th Apr 2011 15:39

Privileged circumstances
The question of whether to file a SAR hinges (as David Winch rightly points out) on the question of the circumstances of the discovery.Does privilege under POCA 2002 apply?

David takes the view that privilege applies as the client approaches the querist for 'legal advice' and that accordingly the assignment could not be regarded as 'in the course of routine work'.

But are these suppositions correct?

After all,in JWB's words the new client 'approached me for help with completing his accounts' not advice on vat registration or arrears or even penalties and only when challenged was mention made of the advice given by the old accountant.

I think on balance that privilege may not apply in this case - in addition,possibly more background information might be needed.

Brian

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