Is a bad "gut" feeling about a client, sufficient to require a MLR SOCA report?

Is a bad "gut" feeling about a client,...

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I recently acquired a new client (small limited company). They contacted me for help producing the first year accounts after having a fall out with their previous accountant (fees dispute). The trading results for the year were abismal to the extent that there were going concern reservations. The job was also complicated by their VAT records being a mess and as a result, VAT was over reclaimed. I tokk this to be due to incompetence rather than fraud because the records are there, they were just a mess and seemed to incate a lack of understanding rather than a deliberate intention to hide. Instructions have been given on what to do to correct this.

When I started compiling the accounts, the question was asked "what does the company owe and to who?". The answer at the time was "nothing". I subsequently found the vat error above, large numbers of invoices in the invoice file with final demands and even solicitors letters before they were paid, a hire puchase agreement and I was able to tease out of the client the information that the company had a fee dispute with one supplier post year end, that had not been paid. This was all in spite of me receiving the response "the company owes nothing".

At the time of authorizing myself to act for the client, I sent out the usual 64(8) to HMRC to cover my dealings with the Corporation tax and also the directors personal tax return. Shortly afterwards, I receive a notice from a penalty from HMRC that the director has outstanding tax returns dating back to 2007. The director claims he was not self employed at this time and was in full time employment. I have told him that as I did  not act for him at this time, I cannot help (he wanted me to write to them) and he will have to contact HMRC directly (he "says") he has done this. It's not impossible that this is a mistake by HMRC rather than him, however I have no way of telling this for sure.

Recently, he contacted me again regarding the future of the company. This is in doubt anyway, as the sales levels are no where near healthy. One option that is being raised is to close the company and do something else and he wants advice. I could advise him on how to apply for the company to be struck off voluntarily (3 months without trade, DS01, ESC 16 etc) however I'm concerned that given his history of "not telling me about liabilities" and his colourful history regarding the VAT and personal tax returns, that this might be a mistake.

My concerns are:

1, He is trying to wind up the company - fair enough, that could be legitimate, but what if he deliberately changed accountants because he knows something is wrong, can't afford an insolvency practitioner and is trying to walk away on the cheap, hanging the consequences round my neck.

2, VAT errors. Again, these "could" be pure mistakes, but on the other hand, what if he has changed accountants, selecting me on the basis of me being QBE (and therefore perhaps he is assuming that I would be less likely to notice (bad move, I am QBE, but I've worked for a few chartered firms including one with an international reputation).

3, For the personal tax returns issue. This could be an error by the revenue (that is the approach I'm taking at the moment as the filing penalty letter looks incorrectly calculated and has the wrong address on it) however what if he has failed to file tax returns and is then trying to get a letter from me to legitimise this?

4, He appears to have attempted to bad mouth me to his previous accountant by saying I have said things which an accountant would know to be incorrect, thereby calling into question my technical competence on company secretarial issues. I have e-mail evidence that demonstrates the information I gave him is correct. This could be simply incompetence on his part, however it could also be an attempt to intimidate me.

As an individual, this person comes across as below average intelligence, and, I hate to say it, but the pressure of running a company may have got to him. However, due to certain things that he has said on occasion, I can't rule out the possibility that he knows more than he is letting on, and may be attempting to manipulate me (claims to know nothing about accounts, but when I asked for the value of stock at year end, he asked if that was the purchase or the resale value of the stock. Most none accounting people generally don't know to ask that question in my experience!!!).

So I guess my question would be this. All of the above "could" just be mistakes. If so fair enough, you employ an accountant to solve problems. However, the above could also be ill conceived attempts at tax evasion or fraud. My question there fore is, in order for a SOCA / MLR report, do you need specific evidence of a specific offence (which generally need criminal "intention") or would a bad feeling "in your gut" about the situation, ever be sufficient justification/would mean that you would need to make a report?

Replies (12)

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By James Hellyer
31st Jan 2012 16:10

Relationships

In terms of Money Laundering Reports, I don't think you need to do anything. The only issue you name that could trigger an MLR is the VAT issue, and then only of they don't correct the mistake now you've brought it to their attention.

The other issues aren't reportable under the Money Laundering Regulations. Lots of people don't understand the concept of debtors and creditors, but stupidity is not a crime!

Really the other matters would either seem to indicate that you don't really want this guy as a client as you don't trust him or like him. Unless you really need his fee income, I'd suggest sacking him and referring him on to another local firm you dislike.

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By mrme89
31st Jan 2012 16:13

Could it be deliberate disorganisation to cover something up? Client appears to be a nightmare in almost every aspect possible.

Personally, I would disengage asap and also complete a report to cover my own back.

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By fpdbookkeeping
31st Jan 2012 16:28

Hi James, thanks for replying. That sort of confirms my understanding of the rules (which is a reassurance). To be honest, it is as much the case that there are simply too many things going on with this individual, such that every time I turn around with him, something else falls out of the woodwork. It's the sort of situation where you sort of feel that you need to watch your back with them, as he has gone around blambing his previous accountant for "this, that and the other" as well. It seems to be a situation of anything he can do to abjegate responsibility for everything he does onto other people.

My main concern in part is that he has paid a lot of things in cash and fails to maintain good credit records. Obviously if the company is dormant, I can go ahead and produce cessation accounts and he can apply to strike it off after the none trading time period has expired, however given he pays for things in cash, what reassurance do I have that he hasn't got a load of invoices in a drawer which he is neglecting to show me and which he can't pay (ie, this is not a dormant company at all but instead an insolvent one, and a situation that should be dealt with by an insolvency practitioner).

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By James Hellyer
31st Jan 2012 16:54

Put it in a letter

Put it in writing to the guy that before the company can be struck off, he has to write to every creditor with a copy of the DS01 to inform them. If he doesn't do so and creditors crawl out of the woodwork, then they can seek an administrative restoration of the company. That way he can't claim he wasn't told.

I'd also add that if the company is unable to pay its debta as they fall due that he should seek advice from a suitably qualified insolvency practitioner.

You will have done your duty and told him what he needs to know.

I'd still probably disengage him, mind.

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David Winch
By David Winch
31st Jan 2012 18:49

MLR report (not)

My thinking is that there is insufficient here for you to have a suspicion that the client has obtained a benefit from crime.  It may be that you suspect the client is planning to do something which could amount to a crime from which he will obtain a benefit (for example by avoiding paying company creditors) but a report is not required until you suspect he has obtained a benefit from a crime.

So I would not be making a report based on what you have seen so far.

Like others, I think this client is likely to be more trouble than he is worth and I would get rid (in a proper professional manner, of course).

David

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By frustratedwithhmrc
31st Jan 2012 21:47

Sorry, have to agree with David

Document your concerns citing specific issues and ask them for a formal written response. The purpose of this should be not only to cover you from a professional viewpoint, but also from a legal perspective. You should give a timeframe for a satisfactory response and then leave it up to them.

Given your previous experience it is likely that either the client will fail to respond in which case you should issue a formal letter stating that they have failed to comply with the terms of engagement (which hopefully you issued them with at commencement) and therefore you are terminating them as a client. You should, however make it quite clear that you expect to be paid for the work undertaken thus far.

If their response is incomplete or unsatisfactory then this provides you with a little more evidence that you are following a professionally correct approach, but as above you should issue a formal termination.

In short - cover yourself, do it professionally, retain the right to collect your fees, but get rid of this client.

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By fpdbookkeeping
01st Feb 2012 14:54

Hi. Just wanted to thank everyone for the responses. They pretty much affirm what I'm doing, but I'm glad to be able to make sure other people would do the same, especially re the MLR thing, which I was a bit unsure over.

Thanks again.

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By mydoghasfleas
03rd Feb 2012 11:33

Missing the obvious

He came to you because a dispute over fees.  Seeing the state of things are you suprised?  How do you intend to get paid?  Have you invoiced him yet, what was the response?  From your view the company is barely a going concern.  I agree with the forgoing advice on the ML front.  If he does not rectify you have to consider the need to report, your position, your future relationship and your work in progress.  Bill then tell him, "my way or the highway".

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By Guardone
03rd Feb 2012 12:04

just walk away

"He appears to have attempted to bad mouth me to his previous accountant" If you have a scintilla of evidence that he is slandering you, give him all of his rubbish back with a letter explaining that you don't work for people who have no trust in you. Hint at the costs of defamation. (I have seen this technique used by soliciors) He has no money so you would not get paid anyway, so no loss. Cut the grief asap. The stress of expecting your  final invoice to be paid is not worth it.

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By fpdbookkeeping
03rd Feb 2012 16:17

Hi, thanks for your comments. I've actually already got the money off him. What put me on alert was when he started talking about winding up the company. Looked like he was may be trying to run away from something, given the number of previous complications.

As far as the slander situation goes, I probably have got sufficient reason to send him packing, as he said to the previous accountant that I had said a number of technical things which were incorrect (I can prove what I originally said as it was backed up by e-mail fortunately), which of course makes it look like I don't know what I'm doing, and which is the sort of information that a competitor would love to have. The only issue with this is, that I can't be completely certain that he wasn't (pardon me)....... just downright thick. Whether incompetent or malicious however, given the risk of him doing something else, I can't really continue to work for him, but the dismissal needs to be handled carefully.

One way or the other though, I want to be rid of him.

 

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By The Black Knight
03rd Feb 2012 16:31

cash up front

or drop it like a hot thing !

You won't get paid.......the clues are there in the correspondence, unpaid bills, mess etc etc...

You will just be the next in line.

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By Guardone
11th Feb 2012 02:53

Since you have had some/ all 

Since you have had some/ all  money, he will naturally feel aggrieved if you do not produce any results. Unless you can prove actual progress with the job, thus justifying payment, which the next person can utilise, I suggest you refund the money. Otherwise he will threaten legal action against you for breach of contract or worse.

 

Alternatively, since he is paying,

Explain again that your contract is with the Ltd company. and he is responsible for his personal tax returns including the missing ones, but for a fee you will help him complete them. Chances are they comprise trading before the company was formed and will show some small taxable profits, if you can find any relevant information. You can get copies of any vat returns from that time which will guide you, plus bank records.

 

Please let us know the final outcome.

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