Does Bob The Builder Have a Problem?

Does Bob The Builder Have a Problem?

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Take a theoretical example of Bob. He is a builder and has sixty employees, all on the payroll. After five years or so, Bob's accountant notices that all the employees receives an untaxed & un-NI'd cash allowance of £10 per week. This is clearly taxable & Ni'able. Bob is distraught. His accountant even more so.

The question'.does Bob have any legal obligation to inform any Authority (taxation or otherwise) of the error and culpable duties due?

I could see that his accountant has money laundering obligations, and Bob may be liable to penalties under s.98A TMA, possibly liable s.144 FA2000, may be some False Accounting, Theft Act, Proceeds of Crime, Cheating Public Revenue etc etc, but does he legally have to self-incriminate (i.e. voluntary disclose), and if so, what about any Human Rights Act?

Whilst the Revenue would like 'full and voluntary disclosure' is it a legal obligation? Also, at what point (and this may be getting a little complicated) does it become criminal, and then presumably a COP9? It is not a 'Scheme' and so is probably outside the Disclosure of Tax Avoidance legislation.

Thanks for all the wonderful technical (or otherwise) answers.

Anon

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By Tosie
08th Feb 2006 20:41

Has there been an offence
Is Bob sure that in the distant past that no dispensation was obtained for the £10 a week.

i.e for laundry boots and small tools.

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David Winch
By David Winch
08th Feb 2006 10:11

The law relating to criminal tax evasion

It sounds like Bob has made an accidental error. As a result he will be liable to pay tax (and NIC), interest and a tax-geared penalty for his negligence. However the matter is not criminal and does not amount to tax evasion. There is no duty to report the matter to NCIS under Proceeds of Crime Act 2002 / Money Laundering Regulations 2003.

However if Bob had dishonestly and deliberately failed to properly account for the tax and NIC then he would have been engaged in criminal tax evasion.

Dishonesty is the key to the difference between negligence (not criminal) and evasion (criminal).

The courts have set out a 'test' or definition for dishonesty. The Court of Appeal said:

"The test is that laid down by this court in R v Ghosh [1982] 2 All ER 689, [1982] QB 1053, namely whether the accused was acting dishonestly by the standards of ordinary and decent people and, if so, whether he himself must have realised that what he was doing was, by those standards, dishonest".

You can commit a criminal tax evasion offence by deliberately failing to do what you realise you ought to do - just as much as by deliberately doing something which you realise you ought not to do.

This puts Bob and his accountant in a dilemma.

Bob has now realised that he has underpaid tax and NIC in the past. That was accidental and so not criminal. However if he fails to correct the matter now that he is aware of it that failure is deliberate, dishonest and criminal. Bob's retention of the tax which has been 'saved' is a money laundering offence.

Therefore:-

(1) Crazy as this sounds, Bob needs to report himself to NCIS and seek their consent to retain his proceeds of crime (because if he does not do so he is at risk of prosecution for money laundering), and

(2) Bob's accountant is obliged to report to NCIS his knowledge or suspicion that Bob is engaged in money laundering (unless he knows that Bob has reported it to NCIS himself and obtained their consent).

However, technically speaking, Bob's accountant has no obligation to report to HMR&C (as distinct from NCIS) and he should not report to HMR&C without Bob's prior consent (preferably in writing).

NCIS will of course pass on to HMR&C the information from any report it receives relating to possible tax evasion by Bob.

Does that help?

David
[email protected]

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