Estimated expenses

Presented facts (names changed to preserve confidentiality).

Paul is a self-employed sub-contractor in the construction industry. He keeps very basic records.

Certain expenses are estimated, with no supporting vouchers, for example £5 per week on cleaning his light van, £3 per week laundry expenses.

Andrew, his accountant, multiplies these weekly expenses by 52 to arrive at a deduction to put in Paul's annual accounts for tax purposes.

Andrew asks if he should report the estimated expenses to SOCA.

MLRO Support Ltd - Opinion

Andrew is obliged to report to SOCA where, in the course of relevant business, he receives information which causes him to know or suspect, or have reasonable grounds to know or suspect, that another person is engaged in money laundering.

A client who is engaged in tax evasion is inevitably also engaged in money laundering as soon as tax falls due and is underpaid (or over-repaid) as a consequence of the evasion.

Tax evasion involves dishonesty, not just innocent error. The requirements apply equally to evasion of income tax, other direct taxes, VAT, other indirect taxes and duties.

In order to know or suspect money laundering, Andrew should have some evidence related to the suspected wrongdoer. It may be very little evidence - for example in certain circumstances a single missing invoice, or even 'shifty behaviour', could be sufficient.

However our view is that Andrew should use his skill, knowledge and experience as an accountant to form an opinion as to whether this client is engaged in tax evasion.

The mere fact that certain figures are estimated and certain expense invoices have not been retained is not, of itself, sufficient to indicate tax evasion.

In our view, if Andrew is satisfied that the estimated amounts are reasonable and allowable then Andrew is also satisfied that Paul is not engaged in tax evasion, and accordingly there is no requirement to report to SOCA.