Assisting with tax – a trap for the unwary!

Some years ago a minor tweak was made to the wording of the Money Laundering Regulations 2017.

It is (I hope) common knowledge that the money laundering regulations apply to tax advisers. In that connection Regulation 11(d) used to read “tax adviser” means a firm or sole practitioner who by way of business provides advice about the tax affairs of other persons, when providing such services.

But in 2020 that wording was changed to read “tax adviser” means a firm or sole practitioner who by way of business provides material aid, or assistance or advice, in connection with the tax affairs of other persons, whether provided directly or through a third party, when providing such services.

Does this matter?

Doesn’t the new wording mean exactly the same as the old wording? Not according to HMRC!

HMRC’s view is that the new wording is wider in scope – and it catches some advisers who were not caught by the original wording.

In particular HMRC’s view is that “material aid or assistance” may be given by an adviser who completes no tax returns, prepares no tax computations and makes no submissions to HMRC on behalf of any of his clients. There are, for example, firms that specialise in advising businesses about the claims they can make for capital allowances or research and development expenditures – perhaps liaising with the taxpayer’s accountants – but without going so far as to quantify the tax implications. HMRC’s view is that such firms became (for the first time) obliged to register for AML supervision as a result of this change in wording in 2020.

Late registration

The danger for such firms is that – if they are not already supervised for AML purposes either by one of the professional bodies or by HMRC – they may be penalised for late registration.

HMRC have a standard protocol for calculating the financial penalty for late registration in such cases. The total penalty chargeable will be subject to a cap based on the firm’s latest annual gross profit, so that normally the penalty will be less than one-third of that figure (however late the registration is).

Subject to that cap, the late registration penalty may be up to £5,000 for each calendar quarter (or part of a quarter) by which the registration is late, subject to a maximum penalty of £100,000 where the registration is 5 years or more late.

Reductions in penalty

It is however possible to reduce the actual penalty very substantially by (i) making a voluntary and unprompted disclosure to HMRC that there has been a failure to register on time and (ii) paying the penalty promptly once it has been confirmed.

Conclusion

Hopefully this article will leave you with a clear understanding of whether or not you need to register for AML supervision and may be at risk of a late registration penalty.

If you think that you may be at risk of a penalty and would like some assistance, then please contact us now.

David Winch MLRO support services ltd

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