I am in a quandary and just looking for some advice really. I have a client who doesn't always operate his business within a law-abiding manner, shall we say. ie he keeps putting things through the company bank account which are clearly personal, however he claims they are for "client entertainment", or other such things. A complete doughnut would be able to see that this is not the case! He has recently bought a car which he claims is a commercial vehicle for business use. It is most certainly not, and is a car for his own private use, perhaps being used for business once in a blue moon. The problem is that he has produced a vat invoice from the dealer (slightly dodgy invoice) and has instructed me to put this through to reclaim the vat at just over £4000. I advised him strongly that this was not allowed, and only vans etc can have the vat reclaimed, but he has told me he wants me to put it through anyway, and will take the risk of getting a VAT inspection. I emailed his accountant to "check" I was correct, and explained the situation (I knew I was right), and he confirmed I am right, the client is wrong. So, what do I do? Should I put it through as per his insistence and risk HMRC investigating? Put the invoice on my system without VAT so it can't be reclaimed (I work remotely so it's unlikely he would ever see the VAT return in detail)? It is his business at the end of the day, so his risk, but I don't want to risk my business by doing things wrong.
I would perhaps ask his accountant to have a word with him about it , if he still insists on putting it through as a business expense then get it in writing that he understands the consequences and that you aren't happy putting this through
Thanks Sharon - I have done this over the phone with the client, however I think I will reiterate this in writing to him as you say. I have just checked the HMRC website re penalties, and the maximum is 100% of the vat as a penalty - that might make him rethink!
At the end of the day it is his business. If he wants to put things through as "client entertainment" that is fine as the accountant will disallow it at the year end.
If he wants to put through a car with VAT then provided the invoice is correctly stated with the appropriate VAT number then put it through.
Though get it in writing that he is aware this may cause a problem at any HMRC inspection. Perhaps confirmation to an email would do the trick. If not put it in writing to him your opinion by recorded delivery and keep a copy of the recorded delivery verification.
I would also put it in writing to the accountant that you have been instructed to put this through despite your reservations then either the accountant who is his tax adviser should do just that and advise him or at the year end will explain he has incorrectly claimed VAT.In the meantime you have emails to both the client and the accountant expressing your reservations.
I really despise clients that put us in this position
A car is a car, and with very few exception is not a commercial vehicle, as we know.
Your client has little respect for you, by dragging you into his fraudulent activity. I hate it when clients try and do that.
I would be concerned that making a VAT claim in favour of the client, knowing it is not allowed would be bordering on aiding and abetting.
As I see it there are four choices
1) You go along with it, and risk being found out. I don't believe that his agreement to accepting responsibility would carry much weight, and it seems like a very high risk, no reward strategy to me . The chances are your professional body would strike you off, and fine you, at the very least (I have heard of this happening to an ICB member a few years back, for making favourable VAT claims for a client). Plus possible prosecution yourself.
2) You point blank refuse, and see what he does.
3) You walk away, and maintain your professional integrity. My prefered option, regardless of the loss of income.
4) You going along with it, putting it writing that what he is doing is not allowable, and make an MLR report, once the VAT claim has been submitted. At which point he would have gained from an illegal act (VAT fraud) therefore would fall within POCA. If you go along with it, and make a report, you should be OK, as you are not allowed to "tip off" the client
You also mentioned he puts through stuff as "client entertainment". VAT is not claimable on this either, nor is an allowable deduction for income tax.
Bill
Edited because formatting went wrong
-- Edited by Wella on Saturday 6th of September 2014 10:27:09 AM
Just to add my fourpenny worth - if it was me, I would disengage myself. Why would you want to
work for clients who expect you do collude in illegal activity ?
I know it's not easy to give up income, but we have to uphold standards!
I completely concur with Bill (no surprises there then).
The income from the client is not worth the risk to your professional career.
Any depending on a bit of paper that says that the client takes full responsibility really isn't worth the paper that it's written on as, as a professional there are three golden considerations :
- What you Knew
- What you should have Known
- What you should have done about it.
And Bill covers all the options above. (Refuse, Run or Report).
kind regards,
Shaun.
p.s. lol, I think that my avatar is quite apt for this one.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Personally I just wouldn't do it and tell them to shove it up their bum if they continued to insist. It strikes me as something they could, if investigated, just completely deny and lay the blame at your feet. You also, (in my mind, I'm not suggesting everyone should feel the same way), have a moral obligation not to allow people to get away with this, I have to pay my full dues why shouldn't other people.
Well lets not be too hasty here, you have to remember that there are certain conditions where VAT can be claimed on a car. The chances are this isn't one of those but if the client is saying it is then it isn't for Gill to call him a liar (even though he probably is!). I think in this situation it is still best to send an email to the accountant expressing her concern but adding something along the lines of 'I am aware that there are certain strict conditions where VAT can be reclaimed on the purchase of a car and I would be grateful if you could deal with the correct procedures and advice'. The following link may prove useful:
Having said all that, I agree with Bill and subsequent posters that if this guy is continually putting you in awkward situations then you should review your position. Sometimes these bullies can be tamed though! Good luck and I think we will all want to know what you do!
I too do not generally police my clients morals, and if they can give me a reasonable explanation of why they want to claim, I will put something through. However in this case it is not a couple of quid that we are talking about, and from what Gill has said, she does not believe it to be a legitimate claim.
In this instance, Gill has (justifiably) a suspicion that the claim is not legitimate, therefore, once the claim has has been made, she could (should?) report it.
But did Gill think that you can never claim vat on a car, as many do, and therefore assumed it was wrong. This is why I say bat it over to the accountant and let him/her take responsibility. In all likelihood it would be an incorrect claim, I'm just saying let's not be too hasty and end up with egg on our faces.
Incidentally a couple of years ago I went on a CPD course about Money Laundering Regs and the tutor was asked 'if you have a client who you know is dodgy (in a dangerous way) and they are likely to rearrange the way you walk and breathe if you report them, what do you do' The tutor said obviously you are supposed to report them but in reality and off the record they would suggest not doing this and if you get caught and get sent to prison surely that's better than being 6 foot under!
I agree, always safety first. There may be a circumstance when under duress that I wouldn't file a report (triads, mafia, someone wearing a hat and dark glasses etc). And having said that an option is to report, it is easy for me to say that's what to do at arms length.
My prefered option, is always to sack the client. I only ever had to do it once, and that was when a clients VAT return was due, and after much badgering for the paperwork, which never materialised, he said "just make it up". At that point I said goodbye, and left him to do his own dirty laundry.
Rereading Gill's posting, she has already contacted the accountant, who agreed with her. Although, we do not know the line of business the client is in, it sounds unlikely that it is claimable.
-- Edited by Wella on Saturday 6th of September 2014 05:27:35 PM
Bill are you casting aspersions at my sartorial elegance?!
I think sacking the client wins, you can just imagine putting a report in about Mr Big and HMRC hauling them in only for your letter emblazoned with your logo to fall out the file!
Back to Gill's dilemma. I don't disagree with anything you have said, I just think there is enough doubt to not report but to formally escalate this up to the accountant and make a note in your MLR file. As the bookkeeper I think that is good enough practice, as the accountant/tax adviser and agent to the client probably not good enough.
Another couple of rounds of ammunition: point out that direct tax deduction will be less if he claims the VAT and that doing so may, statistically, stand out like a sore thumb; increasing the chances of a VAT Visit many times over. Then put on an incredulous Benny Hill expression and say 'good luck'.
