Whether to tell one's accountant about past misdeeds?

[Tortoise1000]

I am asking this question for a friend who is self-employed. The thing is , she’d like to start keeping accounts better and being honest with the tax man. She’d like to find a good accountant and consult them about how to keep her books from now on.

She’d like to be quite open with the accountant and tell him what she has been doing up to now. But, some of what she has been doing is tax evasion. Taking cash payments, there is a lot of cash in her line of business apparently, and under-declaring the amount. Apparently they are all at it. But there is always the risk of an investigation, if she got caught she’d be in the soup. Anyway, she doesn’t want to be dodgy, she wants to pay her taxes properly like a grown-up.

The question is , if she is honest with her accountant about what she has been doing up to now , does the accountant have a duty to report her to the tax man? What is their code of ethics in this respect?

You understand she wants to go straight, as it were, from now on. But she doesn’t want to get into loads of trouble for what she did in the past.

What is it safe for her to do? Be totally honest about everything in the past to her accountant? Or keep that part dark?

I’d really appreciate any advice you can give me to pass on to her, because this is quite outside my area of expertise.

T

[Lootman]

It is my understanding that discussions with an accountant are not privileged. What that means is that your accountant will not be violating his professional code of conduct if he reveals things about you to a third party.

That is not to say that he normally would. There are privacy rules after all. But personally I would not rely on an accountant fighting for your interests if the government puts pressure on him.

In fact even with doctors and lawyers, who do enjoy privilege status, there are some circumstances where not only can they tell the authorities something, but they have a professional obligation to do so. One such example is where you admit that you have harmed yourself or another person, or intend to.

I believe that some financial crimes are included in that exemption.

If it were my friend I would tell them to keep their mouth firmly shut and hope that nobody ever notices. Or else come clean about the whole thing. But trust nobody.

[Tortoise1000]

Thank you lootman. I hadn't thought of it like that. We were just wondering if an accountant would go off and report it straight away.

T

[fisher]

Thank you lootman. I hadn't thought of it like that. We were just wondering if an accountant would go off and report it straight away.

T

I doubt it but surely it pays to be cautious. Why doesn't your friend tell her new accountant that her book keeping has been a bit haphazard up to now and she would like to improve it in the future asking the accountant's advice on new procedures?

I think most accountants are used to people being poor at book keeping.

[JoyofBrex8889]

Personally I would come clean and pay the tax due. Far better for ones health than a tax investigation. A clean conscience and sleeping well with no late night HMRC stress is absolutely priceless. Tax investigations are horrid and stress kills; given the potential criminal liabilities involved, it just isn’t worth misbehaving and getting caught out. There are so many legal ways to reduce tax that it really seems quite silly not to keep good books.

[underbank]

Accountants don't have legal priviledge and are actually required by law to report tax evasion etc under the proceeds of crime and money laundering regulations. So if the OP tells an accountant and doesn't want to come clean to HMRC, the accountant is required to report it.

[Lootman]

Accountants don't have legal priviledge and are actually required by law to report tax evasion etc under the proceeds of crime and money laundering regulations. So if the OP tells an accountant and doesn't want to come clean to HMRC, the accountant is required to report it.

Perhaps the most insidious part is that it appears that an accountant is not required to tell a client that he is obligated to disclose such things. I think at minimum accountants should be compelled to make their clients aware of that obligation.

An alternative is to find an accountant who is also a lawyer. They do exist. In fact a friend of mine is one such. I do not use him as either however. I don't want my friends knowing all my business.

It's also possible that an accountant living overseas does not have that obligation, or at least won't worry too much about it.

[PinkDalek]

Accountants don't have legal priviledge and are actually required by law to report tax evasion etc under the proceeds of crime and money laundering regulations. So if the OP tells an accountant and doesn't want to come clean to HMRC, the accountant is required to report it.

Perhaps the most insidious part is that it appears that an accountant is not required to tell a client that he is obligated to disclose such things. I think at minimum accountants should be compelled to make their clients aware of that obligation. ...

I've located a sample engagement letter relating to Unprompted Taxation Disclosures (although I'm unable to link to it directly). It includes the following which doesn't seem to cover the issues raised above:

We will provide taxation advice to you in respect of a voluntary disclosure to HMRC. ...

We must make it clear that if at any time we consider that:
a) you are not cooperating with us and answering our enquiries fully and frankly; or
b) you do not fulfil your responsibilities as per ... below; or
c) you are unwilling to make full disclosure or you refuse to do so

then we will immediately cease to act and inform HMRC of that fact (albeit not the reasons for ceasing to act). ...

I haven't researched the matters mentioned by 'underbank' but was under the impression, at least historically, such tax evasion as mentioned by the OP does not necessarily constitute Money Laundering for SAR reporting purposes. It would be good if 'underbank' could provide links to source documentation.

Edit: I've found this but haven't read it http://www.ccab.org.uk/documents/FinalA ... dfinal.pdf

[scrumpyjack]

I agree that total honesty with the Tax man is the best policy.

One thing to bear in mind is that if she starts declaring her income fully, HMRC may wonder why the figures for previous years were lower and then open an investigation. I suspect this is just the sort of thing their computer systems are designed to identify.

The penalties will be much lower if she volunteers her previous under declaration of income than if HMRC dig it up in an investigation.

[Lootman]

One thing to bear in mind is that if she starts declaring her income fully, HMRC may wonder why the figures for previous years were lower and then open an investigation. I suspect this is just the sort of thing their computer systems are designed to identify.

One idea then would be to decide to do less business than you otherwise would do, so the numbers marry up better year-on-year.

The irony is that it is advice on what patterns HMRC's systems are and are not likely to identify that is exactly the kind of advice the friend here needs. But that advice isn't available because of the requirement imposed on accountants to basically grass up anyone who is honest with them and wants to fix the problem going forward.

We all make bad decisions and show poor judgment from time to time. It doesn't quite sit right with me that there might be nowhere to turn for help in such a situation. It encourages people to bury wrongdoing or even continue doing it.

[PinkDalek]

But that advice isn't available because of the requirement imposed on accountants to basically grass up anyone who is honest with them and wants to fix the problem going forward.

Are you deliberately only stating “going foward”? A partial fix leaving the taxpayer wide open to further investigation ...

We all make bad decisions and show poor judgment from time to time. It doesn't quite sit right with me that there might be nowhere to turn for help in such a situation. It encourages people to bury wrongdoing or even continue doing it.

There is somewhere to turn, going both forwards and backwards, but you know that already.

I seem to recall you have some experience in such matters but “won”. Do tell me if I’m wrong, as I might be mixing it up with the other cases you’ve mentioned here and there.

[Lootman]

I seem to recall you have some experience in such matters but “won”. Do tell me if I’m wrong, as I might be mixing it up with the other cases you’ve mentioned here and there.

I don't know what you "seem to recall" but I cannot recall claiming to have "won" anything, nor behaving in a manner that might have led to such a claim. I spend a lot of money each year on an accountant to ensure that my financial affairs continue to be impeccable.

[PinkDalek]

I think I was mixing it up with some cases where you said you were either the defendant or witness or something along those lines. Never mind, ‘twas only a throw away comment. It would have been interesting if you had some knowledge of back duty cases or whatever they are called nowadays.