Responsibilities of a Member in case of Irregularities of Tax and Money Laundering after Business Formation UK

29 Nov

It may be discovered by a member after the business formation UK that a client has committed the offence of taxation. Monetary penalties for a number of offences are prescribed by the tax legislation. A possibility of criminal proceedings against the client also exist, which will be a part of discussion in this blog and the case of money laundering will also be considered in the blog.

Irregularities of Tax

If it is discovered by the member of a company formation London or UK, that he has been misled by a client in order to acquire an advantage of tax, then the member must consider his position related to both the client and the authorities of tax.

Discovery of Errors by the Member

It might be discovered by the member that a taxation offence has been committed by the client. The attempted evasion of tax or the evasion may be the subject of criminal charges according to both tax law and the legislation of money laundering. This is not only applicable to direct taxes such as income tax or corporation tax, but also to VAT and other indirect taxes.

Mentioned below are the responsibilities of the member:

  • If the acquired information concerns the returns or computations that the member is preparing at present, the member should make sure that the reflection of information therein is done in an accurate manner. If the client is not able to provide any information as asked by the member, or has an objection towards the way the information has been presented by the member, then it is needed by the member to think whether he should continue acting for that client.
  • If the acquired information concerns return or the computations that have been already prepared by the member and submitted to HMRC, the member cannot permit the HM Revenue and Customs to continue depending on them. It should be advised by the member to the client that he makes complete disclosure to the HMRC, or to give him an authority to do so, without any delay. If the client refuses, then the member is not allowed to act for the client anymore. The client should be given an advice of this, and also that the member should inform the HMRC that they have stopped acting for the client. If the report of accountant is contained in the documents submitted to HMRC, the member should also advise HMRC the ways in which the accounts are defective unless the client’s consent for such disclosure is involved.
  • In case of the information relating to a new client and concerning returns or computations that the client or the third party have prepared and submitted to HMRC, the member must advise the client to make complete and quick disclosure. If the current computations or returns are affected by the error, then the member should inform the client that an appropriate adjustment is required in the current accounts, and in the case if the client does not agree, the member must take into account whether he must act for that client. Even if the present return and computations are not affected by the error, the member must think if he must act for the client if the disclosure of error to HMRC is refused by the client.

The member still has a duty, independent of the fact that whether the member feels able to act for the client or not, to make sure that the seriousness of offences against the HMRC are understood by the client. He should also give a warning to the client that the HMRC may get an alert from the notification that he is not acting for the client anymore, and this may create an urge to make a full disclosure, subject to any acquired legal advice. Any returns, accounts, reports or computations whose submission is made on behalf of the taxpayers, are to be submitted by the taxpayer, not without their consent, unless it is proven by them otherwise.

This focuses on the requirement for members to make sure that an approval of returns and computations is given by the clients and their approval has signified by signing them. In place of setting out the responsibilities of both the client and the member, there must always be a letter of engagement.

As an example, consider that you are preparing the return of tax for Mrs. Y and a bank statement for a new account has been found in her papers, the account being opened with the transfer of a considerable amount from her personal account. It is stated by Mrs. Y that this new account is owned by her son and that there should be no interest on her return of tax. Now in such a situation, what are you supposed to do?

First, it should be explained by you that the income from the funds given by a parent are liable to tax as the income of parent unless the income is not more than £100, so that the interest should be presented. Still, if Mrs. Y does not agree to enter the interest on her return, you must give her an advice that you cannot act for her any longer and you should also give an advice to HMRC that you do not act any longer. It is not mandatory for you to give any reason to the HMRC. At this point, a suspicion has been formed in your mind that an offence of tax may be committed and you must discuss this with the money laundering officer of your company formation London or UK.

Powers of HMRC

Some specific statutory powers are held by the HMRC in order to compel disclosure in specific scenarios. The members should check the statutory power being invoked covers the sought information in reality when the information under such powers is sought. If there is any doubt, then he should go for a legal advice.

In some of the scenarios, you will be asked by the HMRC to provide information voluntarily, instead of the restoration to the usage of their statutory powers. In such a case, the member should carefully take into consideration whether it is in the interest of the client to make voluntarily disclosure, instead of awaiting a statutory demand, and again may make a wish to take some legal advice.

Errors by HMRC in the Favor of Taxpayer

If the HMRC repays the tax to taxpayers with errors, problems may occur even if they have acquired complete disclosure of the facts.

If the direct repayment is made to the client, the member must urge them to give a refund of the extra sum to HMRC as earliest as possible. It may be a criminal or civil offence if the client fails to correct the error. If a refusal is given by the client, the member should take into consideration whether he should continue acting for the client. If he stops acting, he must give a notification to HMRC that he does not act for the client anymore, but is not under an obligation to provide any further details to HMRC, although it may be important to see whether, according to the rules of money laundering, a report should be made or not.

If the member is repaid on the behalf of the client, the member should give a notification to the authorities of tax. Not being able to do so can involve both the client and the member in a criminal or a civil offence.

It is important to note here that if the HMRC repays as they have acquired a different transaction treatment as compared to that taken by the client and the member, this is not a repayment in excess, it solely occurs from a distinct legislation interpretation. This means that the complete details of the transactions have been given, such that the HMRC have come to their decision on an informed basis.

Money Laundering

When the criminals hide the actual origin and ownership of their criminal activity’s proceeds, money laundering is said to have taken place. This occurs with the professionals’ unwitting, such as lawyers and accountants.

Members are compelled by the legislation for the implementation of preventive measures and to send a report of suspicions to the respective authority. If these requirements of legislation are not fulfilled, then this can be a criminal offence often, resulting in a fine or imprisonment. The application of legal position and the legal position itself to any given set of facts may not be that straight and members are hence given an advice to take legal advice whenever they are not sure about their conduct.

In order to make sure that the procedures of client identification are carried out correctly, the members must have appropriate procedures, also to make sure that the suspicions of money laundering are told to the money laundering officer of the company having UK incorporation.

Procedures for Client Identification

A member must verify his identity through independent and reliable means when a new client is taken on. This means:

  • Client being an Individual: By acquiring independent proof such as a driving license, a passport, document of HMRC such as a proof of address and a notice of coding
  • Client being a company having UK incorporation: By acquiring the evidence of incorporation for instance companies house incorporate a company, by the establishment of primary address of the company, by making an identification of the directors and the members of the company and doing the
    verification that those persons have an authority to do so

No work must be undertaken if a sufficient proof is not acquired.

Members are supposed to retain all the records of the identification of client for at least five years after the client’s end of relationship, along with the records of all the work performed for the client.

Money Laundering Suspicions

Members should review the actions of the clients at a regular basis during the tenure of engagement, in order to satisfy themselves that they are fine with the usual activities of the client. If something looks different than the ordinary, it should be examined closely and the record of the conclusions of the member should be made in a written form. If the suspicions of the member are aroused, a report of money laundering must be made.

Suspicion is considered to be something more than a simple speculation, but which does not have a proof based on an appropriate evidence. The suspicion varies from case to case, what remains suspicious for one client, may not be for another. Hence, in order to recognize a suspicious transaction or situation is for the members to have a complete understanding of the client and the client’s activities.

The type of transactions that do not seem to have visible or economic lawful purpose, must be considered carefully in order to understand their purpose and any findings with a written record. If any purpose for the transaction cannot be established, this can be considered as the basis of suspicion.

In the case where the members suspect or know that the funds are the proceeds of crime, either directly or indirectly, then they must send a report of their suspicions quickly to the Serious Organized Crime Agency (SOCA). In the case of the involvement of a tax evasion, the members will also be required to have an examination of their responsibilities to the authorities of tax.

In the case where a legal professional privilege covers the work done by members for the clients, members are not supposed to give a report of their suspicions. The members are strongly recommended to gain legal advice in the case of an issue irrespective of the fact that legal professional privilege is applicable or not. This applicability and the circumstances are dependent on the local law.

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