In last week’s blog we looked at the CCAB case study on incomplete records. This week we look at the potential AML problems that arise when a client doesn’t pay their payroll taxes and VAT (suitably edited for local Irish legislation).

The pandemic crisis has put strain on the cashflows of many businesses. This note considers the obligations that an accountant may have if they become aware that a business that they work for, or one for which they act, is deliberately failing to pay their taxes when due.

  • Payroll taxes are deducted from the wages/salaries of employees by the employer. It is the employer’s obligation to account for these taxes to the Revenue Commissioners within the prescribed time limits. The Revenue Commissioners may be willing to agree to instalment arrangements where certain conditions are met, but these arrangements should be agreed in advance. If a business fails to pay its payroll taxes by the due date, interest is levied and there can also be penalties, depending on the circumstances.
  • VAT is levied on sales to customers and collected when payment is received. VAT paid on goods and services used in the business can (in many cases) be offset in whole or in part against the tax collected from customers.

In general, late payment is a civil matter. But at what point does late payment become non-payment and when might this become a criminal matter?

If steps have been taken to disguise the true tax liability, then this is fraud and would be criminal behaviour. For example:

  • some employees are not included in payroll returns;
  • the amount shown on the payroll return differs from the amount actually paid to the employee; or
  • VAT on sales is deliberately understated.

However, there are other cases where the business simply chooses not to pay on time.

If this is a temporary, unforeseen matter – for example, the business has overdue monies due to it and does not have the banking facilities to cover the payment, and therefore delays the payment until the debtor has paid up – this is unlikely to be criminal. In general, it is advisable to contact the Revenue Commissioners as soon as difficulty making payment is expected, to discuss the prospect of agreeing time to pay.

On the other hand, there are cases where the business is aware that it has structural cashflow issues. In these cases, it does not have the funds to pay bills as they fall due, but uses the funds withheld from salaries (or in the case of VAT, collected from customers) to fund other expenses, with no plan for payment of the tax due.

Depending on the facts, if the business subsequently becomes insolvent with tax due, it should be considered whether this is fraudulent evasion of tax. The business may be in possession of proceeds of crime, which would mean that an accountant acting for that business would have obligations to report the money laundering activity.

There are some key red flags to be alert to:

  1. Has there been any deliberate attempt to disguise the amount of tax due?
  2. Has there been a deliberate, reckless or wilful use of funds which should have been earmarked for tax payments to meet other obligations?
  3. Has there been non-payment of tax and continuation of the trade in circumstances which should have indicated that the business could not meet its obligations as they fall due?

Where these factors are present, you should consider whether a Suspicious Transaction Report (STR) should be made simultaneously to the Garda/Revenue Commissioners on GoAML and on the ROS AML portal.

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For our latest Audit Quality Control Manual (October 2021) (implementing the latest Irish Audit & Accounting Supervisory Authority standards including ISQC1 on audit quality control) click here. View the Table of Contents here.

We also have an up to date Anti-Money Laundering Procedures Manual (September 2021) – View the Table of Contents click here.