Can my accountant report me to HMRC?
Qualified accountants are bound by a code of ethics that obliges them to act if they believe a client is doing something dishonest, illegal, or dishonourable, and they can be disciplined by their professional body if they fail to do so.
Your accountant is required to report you to HMRC in a number of instances. Being reported will trigger an investigation into your tax affairs, and can result in action being taken against you if the reported behaviour is proven.
Before we identify the circumstances in which your accountant might feel it necessary to report you to the tax authorities, and the potential consequences, let’s look a little further at professional accounting ethics and codes of conduct.
Professional ethics for accountants
Professional ethics cover areas such as integrity, professional competence, objectivity, and professional behaviour, and accountants can face disciplinary action if they fail to meet the requirements of the association to which they’re affiliated.
Essentially, their duty is not only to their client – they must also act in the public interest where necessary. Putting in place safeguards within their practice and reporting potential tax evasion or tax fraud, or other suspicious behaviour by a client, is therefore mandatory.
When might your accountant report you to HMRC?
Tax evasion and money laundering are both major concerns for HMRC, and if your accountant has suspicions that such activities might be taking place, they’re obliged to report their concerns to HMRC.
Given the nature of their work, accountants are well placed to spot potential fraudulent activity, money laundering, and tax evasion, perhaps through dubious transactions or large cash payments that don’t ‘make sense.’
If they suspect illegal activity, they’ll send a Suspicious Activity Report online to the National Crime Agency (NCA). Although tax avoidance isn’t necessarily illegal, tax evasion must be reported if your accountant has suspicions.
Tax evasion can include such actions as:
- Not reporting your full earnings
- Using cash, and not providing receipts, to evade tax
- Hiding funds or other assets offshore
- Failing to register for VAT when required
- Not charging VAT when needed
Not always reported by an accountant
HMRC’s increasing use of production orders means that accountants can be forced to provide information on a client even when they had no intention or known reason for proactively reporting them.
As an example, in recent years HMRC’s Criminal Investigation Directorate has been investigating purported tax evasion, targeting certain tax planning arrangements intended to reduce a taxpayer’s liability. These include employee benefit trusts (EBTs) and disguised remuneration loans.
On receipt of a production order an accountant is legally obliged to provide the information requested, otherwise they may face sanctions themselves.
What happens when you’ve been reported to HMRC?
HMRC will instigate an investigation into your tax affairs to establish what has happened - you should receive a letter stating their intentions and the initial scope of the investigation. The scope of tax investigations can be extended, however, depending on information provided, and in some cases they can last for a year or more.
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