Sacking my first "client"

EmmaTaylor

I've just registered as an MIP, mainly so I can work freelance for a charity.

I have one other "client" - a friend of a friend who I view less as a client and more as someone who I help out for mutual benefit - he benefits from my expertise; I benefit from the experience (as I am a new MIP). He runs an Ebay business, and there is scope for a lot more work for me (paid) as he's doing well and growing fast.

So far I've prepared his first year end accounts; over-saw his online tax filing (watched over his shoulder); and have just helped him prepare his first VAT return.

He has, however, decided not to accept my workings for his VAT return as he seems to think that, because his Sales income is through Paypal, it is not VAT able. Meaning rather than pay over £2k to HMRC, he thinks he can reclaim £3k of input tax without paying over any output tax (which should be £5k)

I have explained in no uncertain terms why this view is completely misguided. He has now come back with a nippy attitude basically saying "Get off my case/It's up to me/ this is a legitimate blag/ I enjoy bending and breaking rules/ all small businessmen are like this so get used to it if you want to work for us".

Much as I've enjoyed the work so far (and its great getting my "hands dirty" on a very new and growing business with lots of potential) this was a huge slap in the face and I've basically had to say "I'm out". Has anyone else had a similar experience? Have I been too hasty or is it great timing?.... are all small businesses really like this? !

Monsoon

Ooh..... not nice.

First: Do not take it personally. You are 100% correct. He is evading tax, which is criminal - his attitude is not a good one. Not everyone is like this.
2. You have to sack him, which you already know
3. You have to consider the MLR and whether you need to report him to SOCA (if you're concerned about grassing up a 'friend' then the chances are any SOCA report will get filed, gather dust and do nothing else. Worthwhile legislation, no?! If you actually feel so inclined, reporting him to the tax evasion hotline might have more effect).

There will always be people like this in business. It's a shame you met one as one of your first clients - but at least you know now (it's arguably a good thing, happens to all of us sooner or later)! There are plenty of really nice clients out there and don't be afraid to say no to the ones who don't fall into that category.

Best of luck

burg

Agree with everything Jenni has said. It's rather unfortunate one of these clients has come along as one of your first clients but you have acted quickly and correctly. You seem sure on what he was saying and not just implying.

It's people like this who cost the rest of us money. They shouldn't get away with it but saying that how far you take it is up to you to a degree.

I would at least cover yourself by making the MLR report to SOCA which could land you in trouble if you don't but again as Jenni says they probably won't act on it.

wildgoose1uk

I agree with everything Jenni and Ian have said.

@Jenni: Are you really in the Canaries or is it just wishful thinking?

EmmaTaylor

Thanks folks. Having "sacked" him (or rather, said "maybe you should find someone else"), I've had a beautifully snide and sarcastic email back. Better off out of there: immature; misinformed; unable to read a logical straightforward instruction; and convinced of his own superiority. Heading for a fall.

Regarding MLR/ SOCA - do I really need to make a report? I have given my advice and had it thrown back in my face, but I have no hard evidence that he has actually evaded anything, (yet) - only that he has a bad attitude and a misunderstanding of evasion and avoidance. For all I know he will at this very moment be sucking his thumb while filing and paying over the correct amount online...

Again, thank you for the comments. Those, and a review of the AAT Guidelines on Professional Ethics for MIPS, were very reassuring!

Guest

Exactly, spot on, you should only make a report when you consider an event has occurred not that you consider it may. As far as what has taken place is they thought they don’t need to pay the VAT you have correctly advised and your involvement has ceased. Remove the client from your HMRC gateway so you cannot see what has been filed, make a file note indicating that you have advised to pay the VAT and I wouldn’t consider you have any potential issues.
Welcome to practice!

Paul C

Make the MLR report , keep a copy , and let SOCA decide if it needs further investigation?

That way you cover yourself. Your name would not get back to the client as I understand it. And who knows who has been reading your posts here......but i am a bit 1984.

I got the impression that its best to sack a client first then report as you can't be seen to tip off a client after starting a MLR report by sacking them?

Monsoon

You need to make a report if you have a reasonable suspiciion - you don't have to know for sure. Only you know if this is a reasonable suspicion or not.

And yes I was in the Canaries i- but it's now wishful thinking, am off to unfreeze my water pipes!!!

Rachel

Is it another case of people using ebay to sell and thinking that ebay and paypal take care of VAT & tax? Sorry if going off on one but it makes me mad.

oakley

must be why he is doing well, by not charging VAT, it will certainly make prices look good.

EmmaTaylor

Monsoon wrote: »

You need to make a report if you have a reasonable suspiciion - you don't have to know for sure. Only you know if this is a reasonable suspicion or not.

I don't think it is a reasonable suspicion. I think he will, at least within this financial year, get it sorted and pay the correct amount. As for MLR/SOCA - I have had a read at AAT MLR guidance. I don't believe a report is necessary as MLR has two triggers: suspicion that the business is used to launder proceeds of crime; or suspicion that the business is funding terrorist activity. I suspect neither.

Having "sacked" him, he is now going to have to go to "a real accountant" (not his actual words, just my interpretation of his tone) to get them to handle his affairs, and then he will be disappointed to find out that yes, he does have to hand over that much VAT whether he thinks he has a "legitimate blag" (actual words) or not. The "real accountant" will nicely and calmly sort out the mess of his VAT and fix it all; and I am quite sure that he will be on the right track before you can say "Vat is now 20%"

He'll learn the difference between evasion and avoidance; he'll learn that, while a good accountant will save him money by offering guidance and help in legitimate vehicles (like starting a ltd company which he intends to do) they will also refuse to participate in utter stupidity like making a total balls up of the VAT. Here's hoping they have better luck communicating with him than I.

Like I said, he's a friend of a friend - I see him socially from time to time - and other than this issue, I have no beef with him. I genuinely admire his drive and ability to get on and do things (and to start a business from absolute zero). So I've left it at "no hard feelings".

andrewtdk

Although i feel a soca report may not be needed i think i read that VAT evasion would be considered as the proceeds of crime as you are defrauding HMRC so that may be worth considering

Monsoon

Emma, sounds like you're doing the right thing and from what you've said, I wouldn't have a 'reasonable suspicion' either on that basis.

As Andrew says though, even though the MLR is designed for terrorists blah blah, any proceeds of crime are a reportable offence. Don't think that because you don't meet a terrorist or drug dealer you don't have to make a report. Tax evasion is a crime as is theft and there is no de minimis level. Technically if someone takes a tenner in cash and doesn't declare it, a report has to be made.

Did you know also that, in the case of someone who "pays a tenner for cash" when the price would have been £12 through the books, both parties have committed a crime. The trader has evaded tax. The customer has received the proceeds of crime - the £2 that he has saved.

deanshepherd

Monsoon wrote: »

Did you know also that, in the case of someone who "pays a tenner for cash" when the price would have been £12 through the books, both parties have committed a crime. The trader has evaded tax. The customer has received the proceeds of crime - the £2 that he has saved.

Interesting.

Receiving a cash discount does not necessarily mean any evasion has taken place and to commit a crime the recipient must be 'knowingly' in receipt of criminal proceeds.

I guess it depends how the builder (sorry, was that an assumption?!) words the offer!

Monsoon

Dean yes - I meant in the case where both parties knowingly were doing it because it was 'off the books' and therefore tax evaded.