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Tradesman client in poor health involved in something dodgy

Tradesman client in poor health involved in...

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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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By Kirkers
17th Dec 2013 14:56

I'm going to sit back and wait for the floods of people telling you to file a SOCA report.

 

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By K81
17th Dec 2013 15:00

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.

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By The Innkeeper
17th Dec 2013 15:08

I hate to be pedantic

but SOCA has not existed since 1April 2013. It morphed into the National Law Enforcement Agency

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By andy.partridge
17th Dec 2013 15:10

@ Kirkers

If I manage things well there could be no loss to the Treasury. As things stand there is a potential loss and it would seem quite possibly a deliberate one too.

What If I prepare an accurate tax return for the father and persuade the daughter to register for self-assessment and file an accurate tax return?

A subsidiary question would be, what constitutes an accurate set of accounts for the father? Should they include or exclude the invoices for the daughter's services?

Edit - sorry K81, just seen your post

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By Kirkers
17th Dec 2013 15:12

@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! 

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By Roland195
17th Dec 2013 15:15

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.

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By The Innkeeper
17th Dec 2013 15:22

@Kirkers

Just proves that you can't always rely on HMRC to be a paragon of wisdom ( sarcastic moi ?)

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Replying to Counting numbers:
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By Kirkers
17th Dec 2013 15:25

Agree

The Innkeeper wrote:

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!
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By Kirkers
17th Dec 2013 15:23

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.

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Replying to Tornado:
Stepurhan
By stepurhan
17th Dec 2013 16:05

ML Report (not)

Kirkers wrote:
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?

Hopefully David Winch will be along to confirm this in a minute, but this is my understanding from following his wise words.

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.

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Replying to Absolom:
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By andy.partridge
17th Dec 2013 16:47

Not only that . . .

stepurhan wrote:

 

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.


It seems the customer is indirectly responsible for the father becoming involved. They wouldn't pay into the daughter's personal account, hence the father first becoming involved.  The description on the invoice is tosh, but the amounts are accurate. So there is potentially another form of fraud taking place at the customer - I'm guessing, but no budget for software development but there is an underspend in maintenance?  
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By hkfinancials
17th Dec 2013 15:53

NCA

SOCA has actually been changed to National Crime Agency (NCA).

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By Steve Kesby
17th Dec 2013 16:12

The £50K salary may be significant

How many kids has the daughter got?

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Replying to Moonbeam:
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By andy.partridge
17th Dec 2013 16:49

Good point - will ask

Steve Kesby wrote:

How many kids has the daughter got?

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By Kirkers
17th Dec 2013 16:43

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!

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By andy.partridge
18th Dec 2013 11:23

Next phase

Thanks for all contributions.

Client has agreed that we extract all the 'daughter's' invoices from his accounts so that his accounts and tax return are correct. He will emphasise to his daughter the importance of registering for self assessment and disclosing her moonlighting income.

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?

Sorry, this sounds like a blog! 

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Replying to lionofludesch:
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By B Roberts
18th Dec 2013 14:13

Thoughts

andy.partridge wrote:

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 ?).

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By Carlos_Fandango
18th Dec 2013 11:34

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...

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By Roland195
18th Dec 2013 11:39

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? 

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By Tosie
18th Dec 2013 13:11

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.

 

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Stepurhan
By stepurhan
18th Dec 2013 20:35

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.

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