Tax on Proceeds of Crime

Tax on Proceeds of Crime

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A trusted employee stole a lot of money from his employer over a long period. Employer has decided not to notify the police and the employee has agreed to pay the money back.  What are the tax implications?  Has the employee effectively had a taxable beneficial loan?  If the employee fails to pay the money back, does this turn it into additional undeclared remuneration?  Does the employer have any responsibility to notify HMRC or even to account for PAYE and NIC on grossed up amount?

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By Centaur
18th Mar 2012 23:39

Repayment of Illegal monies...

Although it definitely wasn't planned to be a beneficial loan or subject to PAYE, the actions of the Employer have, in my opinion, made this a beneficial loan (because there is the intention to repay the money), rather than subject to PAYE.  

You don't mention the amounts involved here, the method that the monies were withdrawn or the period over which the monies taken, which might help to put the issue in a better context. There is also the possibility that the employee isn't a higher rate employee (ie earning over £12k) and it is a P9d issue rather than p11d....which might also help.

However although these points aren't so bad there are other possible issues as well. For example a beneficial loan means a class 1a NIC liability, as well as potential penalties regarding the failure to file P11ds, etc.

You will also need to consider whether this is this diverted takings & the internal control systems your client has. If the staff are able to withdraw sums in this manner there is a danger HMRC might also consider that the owner would be even more likely to withdraw greater sums...

You will also need to consider VAT on suppressed takings and also the potential tax penalties for the amounts taken.

Hopefully if you are able to "come clean" with HMRC then they will accept that there shouldn't be any penalties levied on the business owner, but there are no guarantees that this will be the case.

In any event you will need to obtain a loan agreement signed by both sides (Employer & Employee) to cover the repayments from the Employee. I would also consult a HR professional to ensure that any other employment law aspects are covered. I'm guessing that this should formally be recorded as misconduct, but you should take their advice.

I hope that the position isn't so bad, but there are a lot of possible problems caused by your client's decision to retain their "thieving" staff member rather than prosecute them.

 

 

 

 

 

 

 

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Replying to kevinringer:
By aiwalters
19th Mar 2012 17:21

£8,500

Centaur wrote:

 There is also the possibility that the employee isn't a higher rate employee (ie earning over £12k) and it is a P9d issue rather than p11d....which might also help.

Isn't the threshold £8,500, or did it go up to £12,000 when I wasn't looking?

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Replying to Gone Sailing:
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By Centaur
20th Mar 2012 22:28

Still £8.5k .. typo error

Hi aiwalters

 

yes it is still £8.5k limit for the higher rate employee threshold..

 

Andrew McKenzie-Smart

 

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By [email protected]
19th Mar 2012 09:36

More Info

Thanks for that.  It was a very large sum - well into six figures.  Not diverted takings - actually diverted outgoings.  Outgoing cheques allegedly to legitimate recipients were diverted to the employee's own bank account.  Employee was summarily dismissed.  All financial controls are being rigorously overhauled.

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Replying to fawltybasil2575:
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By Centaur
20th Mar 2012 22:34

Repayment of Illegal monies...

Hi 

Well in that case thankfully it shouldn't have any VAT implications, but it will have PAYE implications. Have they made the "loan" interest bearing and got a signed agreement from the dismissed employee? It seems to me that there is a clear danger that he won't repay the money and there is no mechanism to enforce the debt without an signed loan agreement. 

As they have dismissed the employee after uncovering the theft I don't think that there is any PAYE implications for this. 

 

Regards

 

Andrew McKenzie-Smart

 

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