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Company dissolved with unpaid tax

Company dissolved without filing final year accounts

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I was in a minor dispute over a small amount of unpaid fees with a client company that had ceased trading, we still had to prepare the final year accounts and was using that as a lever to get payment. However we belatedly found out that the client had applied to have the company dissolved without our knowledge and this had gone through without objection from HMRC. Our fees aren't now an issue as we won't be preparing the final accounts so we are not out of pocket, however I know for a fact that the final Corp Tax liability hasn't been declared and would have been in excess of £2,000, my question is how do I report this to HMRC?

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RLI
By lionofludesch
22nd Jul 2020 12:47

They're not going to be interested in £2000.

It's small fry to them.

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Flag of the Soviet Union
By thevaliant
22nd Jul 2020 14:47

You can't. The company doesn't exist.

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Replying to thevaliant:
RLI
By lionofludesch
22nd Jul 2020 15:02

It could be reinstated to the register.

If anyone was interested in doing that.

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David Winch
By David Winch
22nd Jul 2020 15:13

Do you have the (ex)client's consent to report it to HMRC? If you do not, then don't report it to them.

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Replying to davidwinch:
RLI
By lionofludesch
22nd Jul 2020 15:22

Does that still apply if there is no client, David ?

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Replying to lionofludesch:
David Winch
By David Winch
22nd Jul 2020 16:02

lionofludesch wrote:

Does that still apply if there is no client, David ?


I would say there was a contractual and professional duty of confidentiality. I don't think that disappears when the client company is dissolved.
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Replying to davidwinch:
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By towat
22nd Jul 2020 18:54

Are saying that client confidentiality trumps deliberate wrongdoing and tax evasion? So we should never report anything?

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Replying to towat:
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By Mr_awol
22nd Jul 2020 19:55

I don’t think that’s quite what the advice was.

David is saying (I think) that you have a professional Responsibility to keep your clients affairs confidential and not to make any kind of declaration to HMRC about a tax liability that may or may not actually exist.

That doesn’t mean you can’t/shouldn’t do nothing. I suspect you may want to consider a suspicious activity report (which will probably be completely ignored just like any report to HMRC probably would be)

Personally if I felt they’d deliberately evaded tax I’d pass it to my MLRO and forget about it.

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Replying to towat:
David Winch
By David Winch
23rd Jul 2020 14:13

The point is that you have a legal obligation to keep your client's (or ex-client's) financial affairs confidential. You do not have a legal obligation to report tax evasion to HMRC. I suggest you re-read the ethical guidance of your professional body in this area if you are unsure.
Of course if you suspect, as a result of information which has come to you in the course of you professional work, that someone (not necessarily a client) is engaged in either a terrorist property offence or in money laundering then you have an obligation to report that suspicion to the NCA (not to HMRC). That legal obligation over-rides client confidentiality.
From the information give by the OP there seems to be insufficient to form a reportable suspicion (because there is nothing to suggest that the ex-client thought he was doing anything wrong).
David

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Replying to davidwinch:
David Ross
By davidross
24th Jul 2020 09:42

Does that mean that ignorance is now a defence?

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Replying to davidwinch:
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By towat
24th Jul 2020 10:22

davidwinch wrote:

T You do not have a legal obligation to report tax evasion to HMRC.

Is that correct? I always thought we did as with any other crime.

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Replying to towat:
RLI
By lionofludesch
24th Jul 2020 10:32

towat wrote:

davidwinch wrote:

T You do not have a legal obligation to report tax evasion to HMRC.

Is that correct? I always thought we did as with any other crime.

I thought you had to report it to the NCA.

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Replying to lionofludesch:
David Winch
By David Winch
24th Jul 2020 13:41

Things are getting a little confused here!
First some general principles -
1. No-one has a general legal duty to report crime to, for example, the police or HMRC (there are exceptions, for example, in Scotland there is an additional obligation under s31 Criminal Justice and Licensing (Scotland) Act 2010 in relation to serious organised crime)
2. Accountants generally have a contractual and professional duty to keep their client's financial affairs confidential, and that includes ex-clients
3. In connection with criminal offences such as theft, fraud & tax evasion there is generally a legal requirement that to prove the offender guilty the prosecution have to show that he had some awareness that what he was doing was "dishonest"
4. In considering whether a defendant was "dishonest" the courts will look at the question based on the facts as the defendant believed them to be, and the law as the court believes it to be
5. There are two types of offence (terrorist property offences and money laundering offences) which a person who is subject to the MLR (like accountants, tax advisers & banks) is obliged to report suspicions of to the NCA (not to HMRC or the police) or to the firm's MLRO - and that obligation over-rides client confidentiality
6. Tax evasion is a criminal offence which will generally generate a financial benefit. Handling etc that financial benefit if one knows or suspects it to be a benefit of crime is a (reportable) money laundering offence.

Now, it seems to me that the OP here has not indicated that the ex-client knowingly side-stepped a tax liability. It seems the OP knew there was a tax liability, that is not the same as saying the ex-client knew. If the ex-client was unaware of there being a tax liability then he is not guilty of tax evasion and as there is no knowledge or suspicion on his part of wrong-doing then there is no money laundering. So nothing to report to the NCA or MLRO.
Equally I assume the OP did not advise the ex-client to break the law.
If the ex-client had knowingly dissolved the company to evade a tax liability then a report to the NCA or the MLRO (but not to HMRC) would be appropriate.
David

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Replying to davidwinch:
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By Caber Feidh
25th Jul 2020 00:28

You said in your paragraph 4. that "In considering whether a defendant was "dishonest" the courts will look at the question based on the facts as the defendant believed them to be, and the law as the court believes it to be."

Is that still the case since the Supreme Court replaced Ghosh with Ivey (Ivey v Genting) as the test for dishonesty - and the Court of Appeal then confirmed in Barton & Booth v R that Ivey was the test to use even though the SC's comments had been obiter?

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Replying to Caber Feidh:
David Winch
By David Winch
25th Jul 2020 10:09

Short answer, "Yes".
The Ghosh test additionally required that the defendant be aware that his conduct would be regarded as "dishonest" by the ordinary standards of honest and reasonable people. That requirement (that the defendant realised his conduct would be regarded as dishonest by that standard) no longer applies.
But the facts of the situation, as the defendant believed them to be, are still key.
So if,for example, I genuinely believe (albeit incorrectly) that face masks can be picked up in shops for free, and I see one in a shop & pick it up & walk out without paying for it, I have not committed the offence of theft as I have not been dishonest.
David

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Replying to davidwinch:
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By Agutter Accounts
05th Aug 2020 09:25

I work on the simple principle that I work for the client, and act according to the client's instructions. And any dealings between us moreover are confidential. I can only release confidential information if the law requires me to do so.

At the end of the day, declaring financial affairs and tax returns is the responsibility of the client. I always ask the client to confirm he/she is satisfied with a draft return, and consents to filing it before I do so.

I always make it clear to clients I DON'T work for HMRC, I work for them, and give the best advice I can. But I work only on their instructions, not off my own initiative.

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Jennifer Adams
By Jennifer Adams
22nd Jul 2020 16:56

This happens all the time and aslionfludesch says its small fry to HMRC.

Some time ago I was involved with a similar case but the client owed HMRC £10k.
The liquidator told me that HMRC wouldnt bother with that amount either.

You've got your money.. leave it unless you know the director was up to something bad and then report

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By Justin Bryant
23rd Jul 2020 13:40

What private organisation would spend very many hours and much money & resources on less than £200 of tax/penalties per the case below (see para 16(2)), yet not bother with all these sub £10k (possibly up to sub c£40k) tax (and penalty) amounts for dissolved companies - that must add up to quite a bit.

http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j11739/TC0...

I guess HMRC operate in this manner only coz the tax cases are published - we should try get HMRC to publish figures for these dissolved company lost tax (and penalties) cases, so that this incongruous behaviour is discontinued hopefully.

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Replying to Justin Bryant:
RLI
By lionofludesch
23rd Jul 2020 13:45

Dunno. But it's not unknown to take a trivial case with straightforward facts to court to decide a point.

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Replying to lionofludesch:
By SteveHa
23rd Jul 2020 13:51

Or, as HMRC have been doing more frequently, take a trivial case with straightforward facts to court, and then completely misinterpret those facts and be lambasted for wasting time.

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Replying to lionofludesch:
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By Justin Bryant
23rd Jul 2020 15:20

That's rather beside my point though isn't it?

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Replying to Justin Bryant:
RLI
By lionofludesch
23rd Jul 2020 15:35

Mmmm - not necessarily.

There could be zillions in penalties hanging on the decision in a case worth £200.

We don't know.

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Replying to lionofludesch:
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By Justin Bryant
24th Jul 2020 09:51

Again, that is beside my point. My point (obviously) is that HMRC wastes money (whereas as a private body would not) where none of that is the case and probably only coz of the publicity point.

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Replying to Justin Bryant:
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By nick farrow
24th Jul 2020 10:01

i agree with you jb

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Replying to Justin Bryant:
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By whitevanman
24th Jul 2020 22:42

I realise it will seem I am just anti-Justin (I'm not!) but you again have overlooked the important fact - HMRC is not a private business, nor is it there to just get the most it can (honest!). They have an obligation, on behalf of the people of the UK, to police the system. That means applying resources to all areas or what they now call customer groups. There was a recent NAO report that contains comment on this and with approval. What they need to do (and apparently do OK at) is to get the balance of resources right. So, they put fewer bodies into looking at the small cases with least risk. It would be entirely wrong to simply ignore large sections of the population and focus only on the biggest companies or richest individuals. Incidentally, the report shows (based on HMRC data) that the most risk and tax loss comes from the smaller business community. It's just a large number of smaller sums that make a large total.
Edit
Damn predictive text got "anti-Justin" as "anti-Muslim"!

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7om
By Tom 7000
24th Jul 2020 10:13

Under no circumstances report to HMRC- you are breaking client confidentiallity and you could end up in court.

You need to report the matter to your firms MLRO and he will decide if he has to make an official report under current legislation... and if thats you, you should know this and you need to go on a MLRO course so you are aware of the rules.... shouldnt you ? :) :)

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By SJH-ADVDIPMA
24th Jul 2020 10:25

Hmrc don't give a monkeys about self employed people under reporting profits or not reporting at all, they are not going to put much effort into the vast quantity of broken dream companies that never really got off the ground., and die with no assets.

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By Fred Hoad
24th Jul 2020 10:40

Presumably HMRC had their chance as part of the striking off process? If they didn't take it, then their chance has gone.

I don't really see the issue.

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Replying to Fred Hoad:
Psycho
By Wilson Philips
24th Jul 2020 11:08

Not necessarily- see below (or above, depending on where this response ends up).

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By john hextall
24th Jul 2020 11:02

No need, they had their chance as part of the dissolution process and passed on it.

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Replying to john hextall:
Psycho
By Wilson Philips
24th Jul 2020 11:07

Not necessarily the case. HMRC, like any other creditor, could apply to have the company restored.

I think the sums involved would have to be substantial though before they would contemplate such course of action.

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By john hextall
24th Jul 2020 11:02

No need, they had their chance as part of the dissolution process and passed on it.

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Replying to john hextall:
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By towat
24th Jul 2020 12:12

So does this mean that every time a company ceases to trade we should advise them to have the company dissolved to avoid paying the final tax bill? even if it means making a false declaration on form DS01 and not sending copies to creditors as required by law?

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Replying to towat:
Psycho
By Wilson Philips
24th Jul 2020 12:42

I have no doubt that some accountants - qualified and unqualified - do exactly that.

Not this one though. On cessation of trade our clients are advised to follow due process - settle all bills (including our own) wait 3 months and apply for striking off. Fortunately it’s not been much of an issue recently since striking off hasn’t been appropriate in the majority of cases. That may change over the coming months.

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Replying to towat:
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By john hextall
27th Jul 2020 13:26

No, of course not, that would be unethical. But if a company has dissolved without your advice as to the correct way of doing so, leaving you (and no doubt many other creditors) in the lurch, what is to be gained by doing more unpaid (and unrequested) work for them in order to submit final accounts to HMRC. Maybe they will end up in prison, which might make you feel better but that's about it.

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By whitevanman
24th Jul 2020 23:30

Another area where HMRC are damned if they do and damned if they don't.
Say company has year end of 31 December. In May 2020 a notice of potential striking -off is received. Latest return they have is to 31 December 2018 and shows tax of £5k. Next return not due for another 7 months. Do they object to every striking-off? For how long? I understand CH will strike-off 3 months after a warning, even if there is an objection.
About 5 years ago, I was told it cost about £2k to have a company re-instated but that is just the basic. The costs of staff working a case and the follow-up would add significantly to that. Meanwhile, HMRC have no way of knowing whether any tax is due and little hope of finding out without significant effort. Even then, what chance they will recover anything?
I'm not saying they never do it, I have no knowledge, but I rather suspect the number of cases is very small and will be very fact specific.
Like others, I suspect £2k is not worth the effort and it would be unlikely that HMRC could take any action even if they were told.
Forget it and move on.

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By [email protected]
27th Jul 2020 09:34

They are not going to be interested once the company is dissolved. Also if you did try and pay them, this money will sit unallocated in suspense.

Do not even try and contact them as you will waste your time and money on phone.

Hope this assists :-).

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By Ian29
27th Jul 2020 11:34

Normally I read the threads and leave it at that, but some of the answers here are so far off beam it is unbelievable. I will give you the facts - this is not a question that should have opinions.
1) Actions taken to avoid payment of tax properly due is fraud under Money Laundering. Read a good AML manual.
2) There is no de minimis reporting threshold.
3) Reporting to NCA, who themselves pass it on to HMRC, is the proper route.
4) ICAEW state that having firm's procedures on AML is not enough and that not applying AML is a disciplinary matter.
5) Not relevant as such, but clearing other discussions. Ignorance of the law is no excuse, either for you or your client.

Short answer. Submit a SAR and keep yourself right.

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Replying to Ian29:
David Winch
By David Winch
27th Jul 2020 11:48

Ian29 wrote:

Normally I read the threads and leave it at that, but some of the answers here are so far off beam it is unbelievable. I will give you the facts - this is not a question that should have opinions.
1) Actions taken to avoid payment of tax properly due is fraud under Money Laundering. Read a good AML manual.
. . .
5) Not relevant as such, but clearing other discussions. Ignorance of the law is no excuse, either for you or your client.

Short answer. Submit a SAR and keep yourself right.


I agree, but you are presuming that the client has taken action with the motive of avoiding payment of tax which is properly due. That is the issue which the OP needs to address - what was the client's motive for dissolving the company?
I also agree that ignorance of the law is no excuse - but the client's ignorance of the facts (i.e. that there may be a tax liability that has not been addressed) may lead one to conclude that the client has not been dishonest & therefore there has been no criminal offence & there is no need for a Suspicious Activity Report.
David
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Replying to davidwinch:
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By Ian29
28th Jul 2020 12:18

My reply was based on the factual aspects of what needs to be done.
If there is suspicion a SAR needs to be submitted - the ML Act is very clear on the point, as are the ML manuals.
To state that "the client's ignorance of the facts may lead one to conclude that the client has not been dishonest" is an argument for the client to present to HMRC if required. And that only absolves him from the reason why he wound the company up - it does not answer the question of whether he was aware (or should have been aware) that a corporation tax liability existed. It is not, from the legislation and the guidelines issued, something for a suspicious accountant to use as an excuse not to submit a SAR.
The bank's Regulated Supervisory Body has issued penalties of tens of millions to bank's for not complying with ML reporting requirements - there was no defence that 'sure it didn't matter because the transactions weren't dishonest'. It was literally that their systems were not reporting transactions that should have been highlighted.
In addition, HMRC have issued complaints to the accountancy Regulated Supervisory Bodies i.e. ICAEW etc. that members are not submitting SARs. A memorandum of understanding has been signed off, and this is linked to the accountancy bodies disciplinary procedures. In addition OPBAS, the regulator of the accountancy bodies, insisted on a whistle blowing facility being provided by the Institutes against members believed not to be complying with the legislation.
This topic, rather than being an esoteric review of a client's motives, is now real.
I suggest the point of the legislation is so that NCA and HMRC can decide what is important - and not have that filter applied before they even receive a response.
If you are confident in your deliberations I suggest you put them to ICAEW and ask their advice. Personally I subscribe to Croner - I find the manuals excellent and the daily briefings to be very informative.

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Replying to Ian29:
David Winch
By David Winch
28th Jul 2020 13:03

Hi Ian
Thanks for taking the time to respond in detail.
It is important not to overlook the legal principle of 'mens rea' - the mental element in commission of many types of crime. Where 'dishonesty' is a necessary element of a crime (for example, in fraud, theft and income tax evasion) then in considering whether he has a suspicion (or whether there are reasonable grounds for a suspicion) the accountant will need to consider whether he suspects the person has an awareness of the relevant facts.
In many cases this will not be clear cut - and in many other cases it will be clear cut.
So I am not here looking for "excuses not to submit a SAR" - I am looking for a proper consideration of the relevant issues.
David
P.S. You are correct to say that large penalties have been levied on banks for failure to have in place the necessary systems, policies and procedures to comply with the Money Laundering Regulations - and that was not an issue related to dishonesty / lack of dishonesty. But that is a different issue (i.e. the establishment & maintenance of CDD etc procedures) from the one that is being addressed here (i.e. whether a SAR is required in the circumstances outlined by the OP).

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JD Portrait
By John Downes
27th Jul 2020 12:03

Would a lawyer be allowed to snitch on a client?

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Replying to John Downes:
David Winch
By David Winch
27th Jul 2020 12:12

Actually that's a different issue - with different legal arguments as lawyers (but not accountants) have to consider common-law legal professional privilege.
In short if a person approaches a lawyer for legal advice (asking for example, 'Have I broken the law by doing X and what are the potential penalties?') then 'legal privilege' applies - and so no SAR.
On the other hand, if a person approaches a lawyer for a transaction service (saying for example, 'I want to buy 25 Acacia Avenue & here is a Tesco bag full of used £50 notes') then that's not covered by 'legal privilege' (as there is no request for legal advice) and the lawyer will be drafting a SAR as soon as the client is out of the building!
David

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Replying to davidwinch:
Hallerud at Easter
By DJKL
05th Aug 2020 09:52

Which suggests when I toddle into my solicitor with the suitcase of readies I need to ask him for legal advice as to whether I am allowed to pay over to him this £500k cash I just happen to have hanging about in order to settle the house purchase I am making. :-)

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