In N Bevan Limited v HMRC  TC 05404 the First Tier Tribunal (FTT) upheld a HMRC penalty imposed on a small accountancy firm for not keeping up with their anti-money laundering obligations.
- The taxpayer is a small one-man company carrying on an accountancy business.
- It is not supervised by any professional body: HMRC are therefore responsible for monitoring their compliance with the Money Laundering Regulations 2007.
Following two site visits and a warning letter, HMRC imposed a penalty on the taxpayer for failure to comply to its requirements in respect of:
- customer due diligence,
- ongoing monitoring of clients,
- record keeping, and
- risk assessment.
The taxpayer argued he had not breached any requirements. Although he could not produce client or other records to show procedures undertaken:
- He only acted for clients they had known for many years, only taking on new clients where they were connected to existing clients.
- He used HMRC’s authorised agent facilities to confirm the information provided to him by clients and as an electronic record of the information he gathered.
The Tribunal in reaching its decision considered the guidance issued by The Consultative Committee of Accountancy Bodies (CCAB) in August 2008. Although acknowledging this is not law, in their opinion it provides a ‘safe harbour’:
- If a taxpayer has complied with this guidance it will not have breached the regulations.
- Failure to comply did not however mean there had been a breach, provided compliance could be demonstrated in another form.
The FTT upheld the penalty, finding that:
- The taxpayer had failed to establish proper verification, monitoring and record keeping processes despite a clear warning to do so.
- The only evidence provided that these were in place was the taxpayer’s assertion.
- Using HMRC’s online tax agent system to record information on clients does not comply with money laundering requirements.
The FTT did however change the level of the penalty:
- It was limited to 10% of the firm’s gross revenue.
- The mitigation factor was reduced from 50% to 20%: HMRC had been ‘over generous’ as the taxpayer had been given the opportunity to address their concerns but did nothing.
The FTT was critical of the taxpayer, pointing out that the penalty could easily have been avoided had they not ignored HMRC’s warnings and addressed the inadequacy of the policies and procedures.
The decision highlights some key points:
- Documenting money laundering procedures is important, even for very small firms: it is not enough to rely on HMRC systems or have the information 'in your head'.
- The CCAB gudiance is a good means to demonstrate compliance, and worth a read if you have not already consulted it.
Case reference: N Bevan Limited b HMRC  TC 05404
The CCAB guidance can be found here.