I recently discovered that a client contractor had cancelled his CIS registration but continued paying some firms who were supply and fix. This was a complete misunderstanding on his part and he accepts that he has failed to correctly operate the scheme. I warned him that if he now notifies the Revenue he will be faced with significant penalties (not limited to £3,000 as he is not a new contractor) and if he does not, then those potential penalties will increase very significantly as time goes on if the Revenue should later find out, due to the continuing delay in submission. He has agreed that we should notify the Revenue. I am quite happy that this does not require a money laundering report.
However, had the client refused to notify, and perhaps simply registered now to get things right for the future, I felt that I would then probably have to make a MLR. My reasoning was as follows:
Whilst most of the subcontractors were probably gross payment firms, some should have had a tax deduction, although they all looked like legitimate businesses so have probably declared the income. I felt that although there would probably be no loss of tax to the Treasury (ignoring the timing issue), that the client had failed to pay over the tax and so had effectively gained a financial advantage and now that he is aware of this, it would be dishonest of him not to put things right. I took the view that although the client had effectively paid too much to the subcontractor and therefore did not gain overall, that the tax and the overpayment were really two separate transactions that could not be offset.
Also, as the legislation requires a contractor to register and make returns or pay penalties, would a failure to report the failure mean that he has dishonestly avoided the payment of the penalty so that the saving of the penalty does itself become criminal property and thereby necessitating a ML report?
The reason for asking now is that I have just found on another forum that in a similar situation the OP was advised by all those responding that as there was no loss of tax, it was acceptable to advise the client not to notify but to get it right in the future. Clearly if there are any legitimate ethical and legal reasons for not notifying the Revenue of the failures, I would like to know!