Potential client has been sole trader for 6 years. Employs around 10 staff with high staff turnover so has employed around 100 staff over last six years. She has included employee costs of £20 - £30k in each year's accounts.
There is no PAYE scheme in existence, no records of employees, and no payroll. Employees have been paid in cash and there are no records of what amounts have been paid to whom. And ,of course, no payments have been made to HMRC.
Now the PAYE inspector has, not suprisingly, decided to pay a visit.
What is the worst case for this trader?
If I take the client on do I have to report her immediately?
Any thoughts appreciated - including whether or not you'd touch it with a bargepole!
Janey
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Replies (7)
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Get your running shoes on...
why WOULD you want to take on the client?
Even if you sorted out this mess, what else is lurking behind the scenes? Sounds like it could be the beginning of a big can of worms.
Unless you're convinced this was a one off oversight due to ignorance, and it can be fixed and will be put right for the future, I really wouldn't bother with the hassle.
To anon
You're right that is possible. As to whether she has kept P46's to show that the employees have no other jobs and should not be taxed at BR is another matter.
I suspect the reluctance to forego the tax relief on all the wages paid out is the reason for the inclusion in the accounts not a desire to be open with the facts.
Who prepared accounts for all those years without asking if there was a paye scheme set up ?
Based on the facts in the question . . .
I agree with Ian and with Anon, but based on the facts in the question:
"Potential client has been sole trader for 6 years. Employs around 10 staff with high staff turnover . . . . She has included employee costs of £20 - £30k in each year's accounts.
There is no PAYE scheme in existence, no records of employees, and no payroll. Employees have been paid in cash and there are no records of what amounts have been paid to whom . . . no payments have been made to HMRC."
On that basis I believe they are reasonable grounds to suspect dishonesty on the part of the employer - hence a report is required to the MLRO / SOCA.
Of course there is a possibility that the employer has not been dishonest (either in relation to failure to operate PAYE or in relation assisting employees to obtain state benefits to which they are not entitled - i.e. benefit fraud, or misrepresenting cash drawn as wages paid). However the test is "reasonable grounds to suspect" not proof.
If Janey qualifies as a "relevant professional adviser" under s 330(14) PoCA 2002 (as amended) it may be the case that she has received the information in "privileged circumstances" which might remove the need to make a report. She should discuss this with her MLRO if she is in doubt (or take specialist advice).
David
Check circumstances first
What if the guy has employed lots of casual workers, never paying over the LEL to any of them? If I remember correctly, there is no need for a PAYE scheme until you have at least one employee earning over the LEL, or at least one employee due to pay tax.
If you are employing casual labour in large numbers, say seasonal workers, maybe students o rthe otherwise unemployed it might follow that no official paye scheme is needed?
Just check first without jumping straight in with ML reports - surely if the figures are in his accounts he's not exactly hiding it?
Worst case !!
Janey
You ask for the worst case. Well, the worst case outcome is extremely unlikely. But since you ask, I would say a relatively short prison term, say a 12 month sentence with release after 6 months, and confiscation of all the client's assets.
See a particularly bad case (Robert Newark) at
http://www.hmrc.gov.uk/bulletins/tbissue74.htm#i
In practice a financial settlement is very much more likely, involving tax, interest and a penalty.
Should you report it under MLR 2007 - YES (even if you don't take the client on - reporting is not limited to clients and you have more than sufficient to have reasonable grounds for suspicion).
Should you take it on - NO (because you do not have sufficient experience of this type of case).
Maureen ...
I'm no money laundering expert, but I do recall a horror story on the initial courses of a solicitor who was convicted of a ML offence for having failed to report a suspicion of money laundering, which suspicion came to him by way of the fraud squad. So, just because HMRC may become aware in the course of their enquiry, I absolutely would not recommend that someone withhold a report purely on that basis. There may be other grounds for not doing so, of course.
As to whether to take on the case, I would say that if you have to ask the question then you should not be taking it on.
No PAYE Records
I cannot believe this has gone undetected for 6 years. I take it no one had a mortgage application, were on sick pay or maternity pay? I suppose no one asked for a payslip or P60 either!
I would not touch this payroll. If you do, you obviously need to factor this in your charges to cover the investigation and all the problems that would surface for years afterwards.
As for reporting this potential client, HMRC will find out from their inspection that there has been a hole in the payroll accounts for 6 years anyway not to mention her self assessment.