MLR question

MLR question

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I have a client who has just purchase a shop from its previous owner.

The shop staff have staid and are now on my client's payroll. The problem is that it has come to light that the previous owner was paying the staff about 25% of their wages as cash in hand with no tax / NIC deducted and equally no employers NIC paid.

My client is now running the payroll in the proper manner and has given the staff a pay rise so that they are not left out of pocket now that the correct amount of tax is being deducted from their wages.

My question is do I have an obligation under MLR to report the previous owner?

Thanks.
Anon

Replies (9)

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By pauljohnston
14th Jun 2008 07:50

Thank you again to David and Stephen
I wonder how many practioners like myself are siiting down reading this set of comments, are re-evaluating all the information they have not on clients but on people connected to or who have traded with or deal with their clients.

Despite being to one of Stephen's seminars I had not realised exactly what is expected of us until reading this. I wonder why and what else have I missed. Is the problem that the Govt agency responsible is not doing enough eductaion at the right level?

Thank you guys.

If you ever run a Seminar together put me down for a ticket. I feel that I have a lot to learn.

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David Winch
By David Winch
09th Jun 2008 18:53

The full facts

You don't need to know "the full facts" to have a suspicion. A suspicion is something which you get before you have the full facts! If you had the full facts you would no longer have a suspicion, you would have knowledge - one way or the other.

Remember the Courts have described a suspicion as a situation where one thinks that there is a possibility, which is more than remote, that the relevant facts exist. A vague feeling of unease would not suffice, but here the accountant has much more than a vague feeling of unease! He believes he has reasonable grounds for suspicion based on what he has been told. That triggers a requirement to report.

Do not confuse a suspicion with proof - even to the civil standard (the balance of probabilities). If you do you will set the bar too high.

The accountant is not required to investigate whether his suspicion is soundly based, he is required to report a suspicion based on the information he receives. Others may then investigate. The accountant is not required to ask to see records of the previous business.

If you have a feeling that "someone ought to look into this" then you have a suspicion.

I appreciate this sounds like the joke about the Sheriff in the Wiid West whose habit was to 'shoot first and ask questions afterwards'. But that is the way this legislation has been written.

As to it being in the course of business, clearly the client and his staff were communicating with the accountant in the course of the accountant's business.

David

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By User deleted
09th Jun 2008 17:21

Thanks Martin
You make a good point. The shop employs seven people and this "cash in hand" thing was only going on with two of them (and part-timers at that) so in actual terms the wages figure in the accounts was not out by too much, at least not enough to have a material effect on the value of the business.

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By steveoneill
09th Jun 2008 16:57

A point to be stressed
Hi David

Just wanted to expanded just a fraction on your reply, because judging by the quick response of "bewildered" there are many people who have still not got the grasp of this area or look for ways to excuse themselves.

To expand on your point of it does not matter if it was their client or not, S330 states "where the reasonable grounds for such knowledge or suspicion came to him in the course of a business in the regulated sector."

At work, the all crime regimes means its reportable, and in this case the suspicion has clearly come in the course of normal business practice. Not to report this instance would be "turning a blind eye" or "burying your head in the sand routine" leaving the practitioner wide open to a S330 charge. Practitioners need to understand how far reaching POCA/ML Regs are.

Steve O'Neill
Business Tax Centre

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By AnonymousUser
09th Jun 2008 16:50

It's not just MLR
The other point here then is that the accounts of the business must also be showing a much lower than true figure for wages, and a much higher operating profit.

Your client presumably relied on these accounts being true and fair when deciding to purchase the business.

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By steveoneill
10th Jun 2008 13:51

Mere speculation?
Arthur

In support of David in what is a tricky area to explain, once you have got to that point where you say "should I report?", you probably should beacuse you have already gone through an earlier process, one which has probably moved through an area of speculation.

It may start out as a gut feeling, the "smell test" is how it is often described, if it does not smell right I should look a bit further. We are in a speculative state. we can all speculate that 62% of our client base is committing some form of tax evasion (official stats), but which ones? We need something a little more tangible to give us our "reasonable grounds for suspicion" to know if any, which client to report.

But once we have reasonable grounds to suspect we report. It is not our job to be criminal investigators nor judge and jury, hence why the lower "test" level is set, we now just get on with our job and let law enforcement and the judicial services get on with theirs, that is where the higher burdens of proof come into play, balance of probabilities or beyond reasonable doubt, that is their responsability not ours.

I am just off now to deliver 4 AML seminars over the next few days. This is one area we spend a bit of time on within the seminar as it does seem to be an area which at first glance causes misunderstanding. Remember suspicion is more than mere speculation.

Steve O'Neill
Business Tax Centre Ltd

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By User deleted
10th Jun 2008 11:44

Yes
With all due respect to David and his unsurpassed technical knowledge, it seems to me that the answer to any question "Should I report?" is invariably yes to some degree.

Do the staff involved not also need to be reported? It seems as though they were perfectly aware as to what was going on.

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By User deleted
09th Jun 2008 14:42

MLR question
Thanks David. I have evidence from word of mouth and from documents. The previous owner also paid the staff at a rate below the minimum wage, though only just. She was paying £5.50 per hour instead of £5.52 (the staff involved are all 22 or over).

It is not a rouse by the staff to get a pay rise. I've seen their previous pay slips and their 07-08 P60s. They work 40 hours a week and the P60 records gross pay of just over £7k for the year.

Thanks again for you input David.

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David Winch
By David Winch
09th Jun 2008 14:27

In a word - YES

I assume that you are saying that you have reasonable grounds to suspect tax evasion by the previous owner.

This may be based on word of mouth or on documents.

If you believe what you are hearing is merely idle or malicious gossip (or that the new owner is being conned into giving the staff a pay rise!) then you do not have reasonable grounds to suspect. On the other hand if you think it is well founded then you have an obligation to report to SOCA under MLR 2007 / PoCA 2002.

It is irrelevant that the suspected person is not your client.

David
www.MLROsupport.co.uk

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