It's been a bad week...

It's been a bad week...

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I live and practise in a small market town and over the years have seen how HMRC cutbacks have allowed and encouraged the black economy. The town, like so many others, used to have its own tax office with inspectors keeping an eye on business activity. I’m aware that the term black is no longer acceptable but using the term cash doesn’t explain the full extent of the problem.

This week I have seen:

  • A director’s house renovations of £20,000 invoiced to his limited company as “factory repairs”. The contract will exceed £100,000 and I have no reason to think that future invoices will not be treated in the same way.
  • The same director charging weekly contract cleaning of his house to his company as “office cleaning”
  • A builder with an annual turnover of more than £100,000 who is not registered for VAT
  • Subcontractors in the building industry who tell contractors that they don’t want tax deducted at source because they settle their own tax and they actually manage to obtain work on these terms
  • Businesses which have not notified HMRC of their existence.
  • Company vans used for private purposes when directors have confirmed they are not used privately.
  • Tax credit claims based on director’s salary of £8060 with no mention of dividends of >£20,000

I’m aware of my obligations under the Money Laundering regulations.

I’m interested in what other members think about the following:

  1. Do Money Laundering reports make any difference? Do HMRC take any notice of them?
  2. Client confidentiality prevents me from notifying HMRC direct but if it’s not a client, what action could I take, if any?

I’ve written this because I’m sick and tired of so many businesses “taking the piss” at the expense of the rest of us.

Replies (24)

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RLI
By lionofludesch
08th Apr 2016 10:43

Surprised

I've said before that I'm surprised that HMRC are so keen to accept accounts from the unrepresented without challenge.

Bearing in mind that we're expected to check on criminal and terrorist activity - for which we're not particularly suited - it's astonishing that we're not relied upon to add some tacit confirmation to stuff that we are good at.

But - hey - I lost confidence in polititians back in 1971.   It was obvious then that they were just as likely to lie their way out of a problem as much as anyone else.  Some might say more likely.

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By justsotax
08th Apr 2016 10:56

to be fair they have probably considered the issues to be

'personal matters'...and then probably submitted information not relevant to the question being asked....maybe they have been a little aggressive and suggested the Revenue 'put up or shut up'...

 

When you are set an example by those who do now better as we have this week is it any wonder that there are many willing to 'take the [***]'...

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Replying to TheresMoreToThisThanArithmetic:
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By steve 12321
11th Apr 2016 12:05

Not sure about that

justsotax wrote:

'personal matters'...and then probably submitted information not relevant to the question being asked....maybe they have been a little aggressive and suggested the Revenue 'put up or shut up'...

 

When you are set an example by those who do now better as we have this week is it any wonder that there are many willing to 'take the [***]'...

If this is a reference to the PM. He has not done anything wrong. It's not the same.

Pushing more work to the accountants and cutting HMRC to do basic compliance is the issue as the OP noted.

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By michael7
08th Apr 2016 11:33

It might not help due to staff shortages but there is this form - https://online.hmrc.gov.uk/shortforms/form/TEH_IRF

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Flag of the Soviet Union
By thevaliant
08th Apr 2016 11:56

As an employee in practice, I've seen most of what you've seen.

When reported to the firm MLRO, I am pretty sure it goes no further. And on the rare occasions when it has, nothing has ever come of it.

I am pretty much convinced HMRC are completely useless at the moment and have been for the best part of a decade.

Many clients don't see even VAT visits anymore, and I've never seen a PAYE visit in my fifteen year career. CT inspections seem much, much rarer too.

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By ireallyshouldknowthisbut
08th Apr 2016 12:06

.

We rely on the goodwill of the tax payer to pay the right amount of tax.

Clearly this is widely abused from the 'cash in hand' trader to the highest in the land, and [***] all is done about it.

I am afraid we need an army of empowered tax inspectors, checking everyones affairs from top to bottom every 5 years or so.  

The thing is they wont actually find very much, because crucially if you know its coming you will declare it. 

Right now its a reasonable risk to stick your head in the sand, and we will look like Greece's tax base before too long.

 

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Replying to Paul D Utherone:
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By Gone Sailing
09th Apr 2016 16:41

Here's an idea

ireallyshouldknowthisbut wrote:

I am afraid we need an army of empowered tax inspectors, checking everyones affairs from top to bottom every 5 years or so.  

Create an "HMRC Appointed Accountant"

These would be registered and appointed a bit like company administrators / liquidators / receivers.

HMRC then sends a letter along the lines of:

"We're not happy with your tax returns so we're sending someone in - and you're going to pay them".

That's the CCTV solution / 5 year inspection as mentioned above, and it's the air cover we need.

 

 

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Replying to RedFive:
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By qhas
10th Apr 2016 13:29

Tax investigation

Gone Sailing wrote:

ireallyshouldknowthisbut wrote:

I am afraid we need an army of empowered tax inspectors, checking everyones affairs from top to bottom every 5 years or so.  

Create an "HMRC Appointed Accountant"

These would be registered and appointed a bit like company administrators / liquidators / receivers.

HMRC then sends a letter along the lines of:

"We're not happy with your tax returns so we're sending someone in - and you're going to pay them".

That's the CCTV solution / 5 year inspection as mentioned above, and it's the air cover we need.

 

 


Good point. Wonder who would pay if nothing found? The taxpayer, one would presume. After all it was HMRC's 'unhappiness' that prompted the investigation. And HMRC's 'happiness' reigns supreme.
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Replying to RedFive:
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By steve 12321
11th Apr 2016 12:08

Don't think so

most people are honest. This is a bad idea. I prepare my tax accurately, Pay my tax. If it all looks off it would show up. eg - low earnings all of the time. Little activity, etc  

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By mabzden
08th Apr 2016 13:11

Casino reporting

Who knows what happens with these SARs. I assume that, if everything works correctly (a big if), they end up in the taxpayer's file at HMRC.

At some point, especially for a business, the file will be pulled out, perhaps due to a PAYE or VAT audit. At that point the HMRC officer will (hopefully) look at the SAR and decide whether to follow up or pass it on to another part of HMRC. At the very least, it will give the inspector a clue that they're dealing with someone who's a bit dodgy.

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By cheekychappy
08th Apr 2016 13:14

This may come as a shock, but you don't have to work for these types of people.

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PJ
By paulgrca.net
08th Apr 2016 13:16

We all come accroos these types

of things occasionally - but if you had all those in I week you seriously need to look at the type of clients you e attracting!

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Small Dog's RAT Return
By Oldmanwetmix
08th Apr 2016 14:34

Its a bit like CCTV

The mindset you can probably blame on some management accountant type. Like the council official earlier this week justifying the switching off of their CCTV system because they weren't needed because crime levels were very low in the area they are situated

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Replying to Calculatorboy:
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By tom123
10th Apr 2016 08:47

Should I be offended?

Oldmanwetmix wrote:

The mindset you can probably blame on some management accountant type. Like the council official earlier this week justifying the switching off of their CCTV system because they weren't needed because crime levels were very low in the area they are situated

Some of us are even trained, you know ;)

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Tony s
By Tony S
08th Apr 2016 15:31

That's one hell of a week!

I didn't know one could register an "anonymous" profile?? is that you Dave?

 

 

 

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Replying to NH:
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By mabzden
09th Apr 2016 13:47

Nice try

Tony S wrote:

I didn't know one could register an "anonymous" profile?? is that you Dave?

It's an old PR trick. You get caught up in a row about a dodgy, multi-billion dollar tax haven, so you and "your people" divert the public's attention to those claiming home cleaning as a business expense.

Shouldn't we be talking about Fred the Shred's pension? That worked for Labour for years...

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By qhas
10th Apr 2016 19:44

Precisely
During an investigation of s relatively small ltd company I casually told the inspector that I truly admired the time and effort HMRC were putting into this case - at most £750 of tax in dispute. "Has your office ever investigated a
PWC client or any of the big four given that that's where the big fiddles are? Witness the cascade of fines they suffer almost monthly." She gave me a vacant look which then turned into a fierce one with the hackneyed response "Not my job." But spending 12 hours (she was there 2 days) disputing a tax liability of £750 is money well spent is it? I asked her that question and then it escalated from there.

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Replying to Arthur Putey:
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By Andrew Lee
11th Apr 2016 11:36

Mutual despondency

I share your despondency.  We tie ourselves in knots every time circumstances arise that might require the submission of a MLR and finally pluck up the courage to submit it and then, what happens, absolutely nothing.  Its the same when you report obvious financial scams - I reported one the other day that had a live UK bank account using a very well-known company's name as a front and when you report via www.actionfraud.police.uk, there is only the ability to submit very basic details i.e. type of scam, that will not be remotely sufficient to enable any follow-up.  I don't really worry now when I have to submit an MLR, because I know little if anything is actually likely to happen.

HMRC's efforts are entirely predicated on creating an artificial expectation of capture and then inviting voluntary disclosure.  Whilst this works to an extent, when you read the annual report identifying the cost/return figures, you really do wonder why the Government doesn't simply throw more money at the problem, at least until there are signs of the law of diminishing returns starting to bite.  They are so far away from this at the moment, yet continue to reduce headcount in key areas of their business leaving under experienced staff trying their best to do their job.  They cannot possibly follow-up all MLRs they receive and its the same with IR35 etc.

Inspectors no longer have any influence over the cases they take.  We had our first "full enquiry" for probably or 15 years the other day and the Inspector said the case was allocated to him by "the system" with instructions about how to deal with it.  It was a complete waste of time and the case was poorly selected and, as expected, no adjustment was necessary at all.  The only good thing about the way they now work the cases is that this was all agreed during the one day visit, rather than after six months of correspondence.

I simply wish for a level playing field in which we can all the do the job we have been trained to do in the best way that we can for the benefit of our clients.

 

 

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David Winch
By David Winch
11th Apr 2016 12:32

Some thoughts

I have to say that Suspicious Activity Reports submitted by accountants, lawyers & financial advisers ought to be a treasure trove of high quality reliable intelligence on possible wrong-doing.  This is because these people ought to be able to distinguish the genuinely suspicious from the simply unusual because of the knowledge they have of their clients' financial affairs.

I am less convinced that SARs from banks are likely to be of such high quality (although of course the vast majority of SARs are submitted by banks).

But let's look at this from a different angle.  Suppose intelligence indicates that someone, call him Fred, has unexplained wealth.  What should be done?

It may be that Fred's wealth is entirely legitimate.

It may be that there is some tax irregularity concerning Fred.  Then the case ought to go to HMRC.

It may be that Fred is involved in some dodgy business activity, such as selling counterfeit DVDs.  Then the case ought to go to Trading Standards.

It may be that there is some more serious criminality involved, such as drug dealing by Fred.  In which case the police should be involved.

But until there has been some significant investigation there is no knowing who ought to deal with Fred.

Then again, is it best to be thinking of a civil investigation - such as a COP9 by HMRC - or a criminal investigation & prosecution (which is highly labour intensive & can take years to complete)?

It seems that government does not want to put in the resources over a long period that would be required to deal effectively with a high number of investigations.  That is really a decision by politicians about the importance they place on these matters.

David

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By mabzden
11th Apr 2016 13:20

They can be picked up

I've made a few SARs over the years and most of them have disappeared into the ether, without any obvious action being taken.

In one case, though, I received a Court Production Order asking me to hand over all papers connected to the ex-client. HMRC contacted me and it was clear they knew about the SAR, although they had already been investigating the person concerned.

So while HMRC may not have a team of ex-CID detectives sifting through SARs as they come in, they must go in to a database somewhere and are accessed if and when it suits HMRC to access them.

 

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David Winch
By David Winch
11th Apr 2016 16:03

Database

The information from SARs does indeed go onto a database maintained by the NCA which is accessible by authorised teams within the police, HMRC, DWP, local authorities, etc.

Obviously SARs which are flagged up as suspicions of tax evasion are of particular interest to HMRC & so on.  Hence the use of the XX glossary codes.

However my understanding is that it is NOT the case that, for example, when the police decide to investigate someone (based on their own information) they will routinely search the SAR database at an early stage to see if there are any reports about him.

Obviously it is also not the case that every SAR leads to some sort of action by the authorities.

In the case of a bank submitting a SAR about one of its customers the bank will often 'freeze' the customer's accounts temporarily & seek a formal 'consent' from the NCA to 'unfreeze' them.  That obliges the NCA to respond within 7 working days.  One would presume that such consent requests are dealt with in priority to anything else (except SARs relating to suspected terrorist property offences).

David

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By Homeworker
11th Apr 2016 17:47

Many clients don't see even VAT visits anymore

but when they do, HMRC take six months or more to deal with them, even though the client has done nothing wrong. We have a client who is making losses (she runs a business employing others and lives off separate employment earnings) whose health is being affected because HMRC just wont drop the case.

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By [email protected]
12th Apr 2016 06:16

Agree and disagree

I have noticed that clients try to take advantage and if you are as accountants strict with your clients they tend to behave good. in case they do not listen let them go as sooner or later such clients will be under Radar of HMRC. without doubt HMRC must start a system of 5 yearly audit of accounts of every business which can create huge value for the profession and accountants

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By childrenintouch
12th Apr 2016 10:30

It's been a bad decade....

I was in the Revenue for nearly 40 years and in that time there were never enough people to do the job properly, and I did loads of weekend overtime from the mid 1980's onwards.

In the distant past we had tax districts and allocations of work.  It was really important to use local knowledge and know your taxpayers.  I picked up loads of enquiries that way, including one which I passed on to a colleague which flowed from research I did when I saw a large extension being built on a house in the next village.  It was being settled for £2½million when I left.  

Now I work in an accountant's office, and it is quite clear that HMRC are not using information available to them from diverse sources to make the enquiries that they should.  Things have got worse since everything has been centralised, and there is little local responsibility, which can only get worse when the local offices have gone.  The only specific responsibility for taxpayers is for the large companies, and even there HMRC do not have sufficient resource to effect and efficient litigation strategy. 

The Revenue frankly gets the department it deserves when the likes of me have gone.  There was a whole army of efficient and very professional higher grade tax officers and junior inspectors who are no longer there. They no longer give adequate training to the clerical staff.  I had a meeting with David Cameron soon after he became PM in an attempt (in the public interest) to get him to stop reducing the number of Civil Servants.  That worked well....

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