I couldn't tie up the invoices and bank receipts so called the client in to work through it, then the truth came tumbling out.
Client's daughter is moonlighting form her PAYE job and getting dad to invoice her client through his sole trader business. The invoices description wrongly give the impression the work has been done by dad (he is a tradesman, she is a software developer).
Her client pays the invoice into dad's business bank account. He transfers the money to his personal bank account, keeps 10% and pays the rest to her. She is not registered for self-assessment, but dad reckons she earns £50k in her PAYE job. He is a basic rate tax payer.
He wants to help her out because she is his little girl and has money problems. He had a massive health scare last year and should be taking it easy.
The intended 'fraud' is pretty obvious. How would you handle the next steps?
Replies (21)
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I'm going to sit back and wait for the floods of people telling you to file a SOCA report.
Now that this has come out he needs to take out all of the invoices that relate to his daughter & get her to register for self-assessment & come clean about her income.
If he isn't willing to do this then you know what you need to do next.
I hate to be pedantic
but SOCA has not existed since 1April 2013. It morphed into the National Law Enforcement Agency
@The Inkeeper - wasn't aware it had changed it's name. HMRC website still refers to it as SOCA.
@andy.partridge - I probably should have made myself more clear.. I wasn't saying file a report, I was just anticipating that you would get lots of people telling you too! Was supposed to sound more light hearted than it does, now that I've read it back!
Options (Without Prejudice)
1. Meeting? What meeting...I am afraid I have been taking medication that affects my memory. Did you tell me anything important?
2. Pay the daughter a salary from Dad in respect of the work carried out at the market rate - The hourly rate from her day job may be appropriate. Need a payroll set up to do it though.
3. Undo the whole thing and register the daughter for self employment.
@Kirkers
Just proves that you can't always rely on HMRC to be a paragon of wisdom ( sarcastic moi ?)
Agree
Just proves that you can't always rely on HMRC to be a paragon of wisdom ( sarcastic moi ?)
Definitely. I just would have imagined after 8 months HMRC would have updated their 'SOCA' page, as it's rather important information to get wrong!
Personally I would sit down with the client and explain that they need to register the daughter for self-employment/assessment, submit correct tax returns, pay the necessary tax due and have the father take the invoices out of his accounts.
Would you not then need to file a report as well? Money has been paid into one account, transferred across with the father taking his cut, and most likely withdrawn at the other end. As the transactions were fraudulent does this not make the money proceeds from crime and/or money laundering?
Regardless of if he changes his ways, do you not have an obligation to report it anyway, as the act has happened?
If anyone more knowledgeable wants to correct me, be my guest. I am only a student working in practice.
@andy.partridge - the above is how I would proceed, but I may be wrong.
ML Report (not)
Hopefully David Winch will be along to confirm this in a minute, but this is my understanding from following his wise words. Would you not then need to file a report as well? Money has been paid into one account, transferred across with the father taking his cut, and most likely withdrawn at the other end. As the transactions were fraudulent does this not make the money proceeds from crime and/or money laundering?Regardless of if he changes his ways, do you not have an obligation to report it anyway, as the act has happened?
If the situation is undone so that the correct people are taxed on what they have received, there is no money laundering to report. Money laundering requires a gain to have been made (including avoiding paying tax when it would be correctly due) so eliminate the gain and you eliminate the need to report.
This is assuming that the customers have not been misled in some way. As the daughter did the work, and she is the one with the expertise, this seems unlikely. Probably the worst that has happened to the customers is some confusion from paying into an account in a different name.
I was going to ask the same
I was going to ask the same as Steve. It may be all well and good submitting tax returns and paying the tax but if she has any children she'll have the high income child benefit charge too. Worth asking about!
Thoughts
Now, the daughter is of course under no obligation to use me or for that matter any accountant in sorting her tax affairs. Would you take in on trust that she does what's required and move on?
My thoughts (and I admit that I do not work in practice).
The easiest way would surely be for your client do remove the transactions relating to the daughters work and to submit a correct return (not sure what you would do with his 10% "Commission" ?).
Beyond that, neither the daughter or the company who pays the invoices are your clients, and therefore are not of your concern.
Before the "report them" brigade jump in, for all you know the daughter and company may indeed submit a correct return, so no need to get involved (surely you can't report somebody for something that you think they "might" do ?).
As the 'software' customers are party to this fraud, in that they must surely be aware who is doing the work, how the work is being described on the invoice and who they are paying the money to...and I imagine were known to the daughter before this all kicked off...wouldn't the customers have filed a report themselves...
I'm not so sure that that is the best approach
I would prefer to continue to show the invoices in the father's accounts and then show a corresponding cost of sales for the transfer of the daughter (after she has rendered appropriate invoices of course).
This would achieve the same effect however your client's records and accounts would make more sense if they are enquired into whereas your proposed method may leave unexplained gaps in the invoices that may excite HMRC unduly.
If you do not act for the daughter, I cannot see you have any reason to suspect she will not meet her responsibilities therefore no ML report.
Is there a VAT issue though?
other implications
Software developers often have clauses in their contract saying they cannot work for other companies. If daughter is good and knows the company in question this maybe the way that they have worked it out.Sony is one such company.
Many software developers put their "night time " work through ltd co fronted by an other.
Suspicion
Depends on whether you still have a "suspicion" that they will do the wrong thing. You have advised, via your actual client, the best way of addressing this. Given how they set up the arrangements in the first place, are you happy that you no longer have "suspicion" that they will fix things?
Reasonable suspicion, undeniably vague as that is, is the trigger for ML reports.