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Busy Practitioner by Mark McLaughlin ATII TEP

Taxpayers with outstanding Tax Returns for 2003 and earlier years could find themselves being actively pursued by the Inland Revenue from February 2004. 1 March 2004 also sees the introduction of The Money Laundering Regulations, explains Mark McLaughlin ATII ATT TEP.

Late filing of returns

Practitioners with clients who have not filed their 2003 tax returns could find the Inland Revenue actively pursuing the submission of those outstanding returns by telephone, in writing, or possibly both. Specialist teams of Revenue staff have been formed to begin penalty proceedings in cases of continued delay. Clients particularly at risk are persistent late filers, cases where large amounts of tax are at risk (i.e. where fixed penalties of £100 may be an insufficient deterrent), or ‘there are particularly pressing reasons for requiring early submission of the return’ (see the Inland Revenue’s Enquiry Manual at paragraph 4570).

The Inland Revenue can apply to the Commissioners for penalties of up to £60 per day for each late return for individuals (TMA 1970, s 93(3)), or for partnerships (s 93A(3)). This sanction is nothing new, but the Revenue’s policy of applying it is a relatively recent development. Following a direction by the Commissioners, the Revenue will immediately notify the taxpayer in writing (with a copy to any agent), allowing 14 days for submission of the outstanding return(s). However, the Enquiry Manual instructs Revenue staff to ‘be prepared to consider sympathetically any representations made by the taxpayer or agent’. Otherwise, once this 14-day period has expired, another letter is issued stating that the penalties are being charged.

An important point to note is that whereas the £100 penalties for a late return cannot actually exceed the tax liability for the year as shown on the return (TMA 1970, s 93(7)), no such limitation applies if daily penalties are imposed. Practitioners should therefore warn potentially ‘high risk’ clients of the Revenue’s approach regarding daily penalties, and encourage them to act immediately.

Key dates

28 February 2004

Any balancing payment of income tax, capital gains tax and Class 4 National Insurance contributions based on 2003 tax returns (if due to be filed by 31 January) must be paid by this date, in order to avoid a 5% surcharge being automatically imposed (TMA 1970, s 59C). However, for 2003 tax returns issued after 31 October 2003 (if the taxpayer notified chargeability by 5 October 2003), the relevant surcharge date is 28 days following the tax payment date, which is three months from the return’s issue date (TMA 1970, s 59B(3)).

1 March 2004

The Money Laundering Regulations SI 2003 No. 3075 come into force from this date, affecting accountants, auditors and tax advisers among others. Practitioners are reminded that the Regulations impose certain obligations with practical implications in the course of carrying on ‘relevant business’, including the following:

- Systems and training to prevent money laundering (Regulation 3)
Procedures must be in place to forestall and prevent money laundering. Relevant employees must be made aware of the provisions of The Money Laundering Regulations 2003, the Proceeds of Crime Act 2002 (money laundering) and the Terrorism Act 2000, ss 18 and 21A. Those employees must also be given training in how to recognise and deal with transactions potentially related to money laundering.

Failure to comply could result in a custodial sentence not exceeding two years, a fine or both. However, it is a defence to show that reasonable steps were taken and due diligence exercised to avoid committing the offence.

-Identification procedures (Regulation 4)
Practitioners must maintain procedures to identify ‘an applicant for business’. New clients must produce, ‘as soon as is reasonably practicable’ satisfactory evidence of their identity or, alternatively, measures specified in the procedures must be taken in order to produce such evidence. If satisfactory evidence of identity is not obtained, the business relationship (or one-off transaction) must not proceed further.

- Record-keeping procedures (Regulation 6)
Procedures must require the retention of records obtained under the identification procedures for at least five years after the business relationship (or the last transaction) ends. A record of all transactions with the client in the course of the practitioner’s business must be maintained, and retained for at least five years from the final activity.

- Internal reporting procedures (Regulation 7)
The firm’s reporting procedures must require that a money laundering reporting officer (MLRO) is appointed, and that anyone in the course of relevant business who knows or suspects money laundering activity must make a report to the MLRO. The matter must be considered by the MLRO, and if appropriate a report made to the National Criminal Intelligence Service.

These internal reporting procedures do not apply to practitioners who do not employ or work in association with another person. However, the other money laundering requirements do apply.

Practitioners should ensure that satisfactory systems and training procedures are in place by 1 March 2004, if not already implemented. Familiarity with the money laundering provisions is strongly recommended.

This article was first published in the February 2004 issue of 'Busy Practitioner'