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Client wilfully refuses to register for VAT.

Client wilfully refuses to register for VAT.

My client exceeded the VAT threshold some time ago and despite my cajoling, will not notify HMRC that he should have been registered for VAT.

Now, quite apart from refusing to act for him any more, is it incumbent upon me to inform HMRC myself, if only to cover my own backside?

And secondly, how come HMRC don't pick up from SA Tax Returns that the VAT threshold has been breached yet the taxpayer has not registered for VAT?

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26th Sep 2010 12:25

Report

I think you need to submit a SAR.

John Perry

www.centralbusiness.co.uk

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26th Sep 2010 16:46

In reply to your last point

I think they do, though it may not be a very robust system and of course there is going to be quite a time delay until the relevant return may be reviewed.

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26th Sep 2010 16:47

Inform SOCA - do not inform HMRC

You have a legal obligation under s330 Proceeds of Crime Act 2002 and the Money Laundering Regulations 2007 to report to SOCA by way of SAR (Suspicious Activity Report) your suspicion that the client (or ex-client) is deliberately evading tax (in this case, VAT).

You can complete the SAR online, see the SOCA online SAR system (click on the link on the top right hand side of the page "Reporting SARs").

Failure to make a report to SOCA would leave you liable to criminal prosecution or regulatory penalties.

However you should not report the matter to HMRC (unless your client tells you to do so).  Reporting to HMRC without your client's instruction would be a breach of client confidentiality.  (In any event SOCA pass the information to HMRC.)

David

www.MLROsupport.co.uk

 

P.S. The obligation to report to SOCA under s330 is NOT limited to clients and ex-clients and is NOT limited to tax evasion - it relates to any suspicion you have of any type of money laundering by anyone (where that suspicion derives from information received in the course of your accountancy / tax / audit / insolvency work).

 

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26th Sep 2010 17:38

SARS Win

I agree a SAR is the best and only way to go with this. I had a similar situation recently with a client I was working with on a 3 month trial. He had not registered at the correct time and should have retrospectively registered. he disagreed with me, and his regular accountant - the one I was hoping to take the business from - told the client that there were ways round registering and my trial client went back to the original guy. Like one of the other contributors, I just found it hard that HMRC don't pick this up from SA100s or CT600s as it must be really obvious and an easy check to implement 

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26th Sep 2010 21:32

Where a client receives conflicting advice

ngm1scot

In your case it seems that the client received conflicting advice concerning registration.  You said he was required to register, the previous accountant said he was not.

I neither know nor care which of the accountants was giving the correct advice.

The client (understandably) accepted the advice that he did not need to register.  The client would have assumed that the accountant who could find 'a way round' registration was more knowledgeable than the one who could not.

The important point here is that this client apparently believed that he could (quite properly and honestly) follow the advice which he found preferable.

So the client has not been dishonest by not registering for VAT and it follows that he cannot be guilty of the criminal offence of tax evasion - even if, in fact, there is no valid 'way round' it.  (If the advice proves to have been incorrect he can of course be liable to a CIVIL penalty for failing to register on time - but that is not relevant to an SAR.)

Since the client has not committed a criminal offence he also, in the circumstances, does not commit a money laundering offence (since he has no proceeds of 'crime').

As there has been no money laundering offence, no report should be made to SOCA.

(This is in contrast to the original poster's case in which the client wilfully failed to register despite knowing that he was required to do so.  It is the client's dishonesty which is the key - and that depends upon what the client thinks is the VAT law, not what the VAT law actually is.  These days as well as accountancy and tax skills you are required to have some mind-reading skills as well, OK?)

David

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26th Sep 2010 23:01

After a long while ..................

I think they do, though it may not be a very robust system and of course there is going to be quite a time delay until the relevant return may be reviewed.

Posted by Anthony123 on Sun, 26/09/2010 - 16:46

 

We had a new client come to us after HMRC had picked up on failure to register - his accounts showed turnover circa £200k.

However, it had taken HMRC THREE YEARS to pick up on it.

So yes they will pick up on it - but dont hold your breath waiting.

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27th Sep 2010 08:22

Not everyone's guilty

Trouble is - there are quite a lot of reasons why someone with a turnover of £70K+ doesn't mean have to be registered for VAT.  I think they do it as a sampling of the data and just pass on whole swathes of data to the wonderfully named Shadow Economy Teams who then send out the 'your turnover appears to be in excess...' letters, after filtering ssome out.  I think it's just a matter of resources vs returns and as with every aspect of tax they hope to encourage honesty by the knowledge that they MAY catch up with you.

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27th Sep 2010 09:22

@ David

So in respect of tax evasion, this is one area where you can say that ignorance of the law IS a defence.

-- Kind regards Andy

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27th Sep 2010 09:25

Vat registration

Just a thought

Is any of the "turnover" just charging for expenses incurred, which the customer has agreed to pay on top of services? 

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27th Sep 2010 10:36

Ignorance of the law & dishonesty

Andy

The point really is about dishonesty.  Very many financial crime offences have dishonesty as a necessary core ingredient.  In order to be dishonest I have to do something (OK, by 'do' I include an omission, a failure to do something which is required) which BOTH (a) the ordinary and decent person would regard as dishonest and (b) which I myself realise to be dishonest by the standard of the ordinary and decent person.

If I take a pneumatic road drill to the cash machine in the wall of the bank and get cash out of it I think that you can see that would be dishonest.  I don't have to know the ins and outs of statute and case law to know that taking cash from a bank in that way is dishonest.

What if I apply for a mortgage and put on the application form an income figure that is twice what I currently make?  But I know that when I get the mortgage I will work twice as hard and then I will be making the income I have shown on the form.  Is that dishonest? Well, maybe.

If I did that as a chartered accountant I think a jury might find me to be dishonest.  But if a sub-contract bricklayer did it a jury might find that he was not dishonest, he simply misinterpreted what information was required on the application form (he entered what he could make in future rather than what he was making at the time he applied).  If so part (b) is not satisfied, he is not dishonest and so he cannot be guilty of mortgage fraud.

So our bricklayer is not ignorant of the law (he knows that lying on the application form would be a wrong thing to do) but, in his own mind, he is telling the relevant truth as he understands it to be, so he is not dishonest.

Now if I am, say, a self-employed shopkeeper in Birmingham and my (apparently legitimate and honest) accountant tells me that if I bank part of my takings directly into an account in the Cayman Islands then that part need not be declared for UK income tax because I don't receive that money in the UK myself, then I would not be dishonest in following that advice (believing it to be correct*).  So I could not be guilty of tax evasion even if, as a result, I under-declared my income to the UK tax authorities.

Does that make sense to you?

David

* in fact such advice would NOT be correct

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27th Sep 2010 10:42

Thanks David

Yes, it makes sense  . . . . . but it doesn't sound democratic!

-- Kind regards Andy

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27th Sep 2010 11:00

taking it to another level

 

Would our accountant have to report the other accountant for money laundering if, as seems to be the case, he believes that the advice being given is wrong and the other accountant is only giving it to retain his client? Would the fees that the other accountant is getting be considered criminal receipts?

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27th Sep 2010 12:38

Text book answer . . .

The 'text book' answer is that if a person is deliberately giving false advice (which he 'sells' as correct) to earn fees which he would not expect to earn if he gave correct advice, then that is criminal conduct (I would describe it as fraud by false representation contrary to s2 Fraud Act 2006, if you want to get technical).

So, yes the fees earned would be criminal property and yes a suspicion of that would be reportable.

However, all of this only applies if the person proposing to submit an SAR knows or suspects that the other accountant is deliberately giving false advice.  I would be cautious about this as, if I were considering making a report in these circumstances, I would want to be sure that I correctly understood the client's tax position, and the advice given by the other accountant, and was reasonably satisfied that the other accountant realised he was giving incorrect advice.

Certainly my own knowledge of VAT doesn't give me sufficient confidence to say that the other accountant is giving deliberately false advice.  So I wouldn't report it myself.

David

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