In Online Tax Rebate Ltd v HMRC  UKUT 0167 the Upper Tribunal held that a company obtaining tax rebates for employees was a tax adviser under the Money Laundering Regulations; it should have undertaken customer identity checks.
The Money Laundering Regulations 2007 (the Regulations) apply to “relevant persons” (which include tax advisers) and define a “tax adviser” as:
“a firm or sole practitioner who by way of business provides advice about the tax affairs of other persons, when providing such services. “
- Under the regulations there is an obligation on a relevant person to apply customer due diligence measures to identify the customer and verify their identity.
Online Tax Rebate Ltd (OTRL) assists employees to claim adjustments to their PAYE code and/or repayments of tax overpaid by reference to flat rate reliefs such as laundry costs for work uniforms.
- They are registered with HMRC for money laundering purposes; the company state this is for precautionary purposes as it is not a tax adviser and believe HMRC is their only customer.
- Claims are made direct to HMRC via a fully automated process but require the employees to enter into a contract with OTRL before they can be completed and submitted.
- Where HMRC issues a repayment it goes to OTRL who deducts their fee and pays the balance to the individual.
- No identity checks are made by OTRL until after the claims are submitted and they receive a payslip from HMRC.
- HMRC considered that the Company’s business model makes it a “tax adviser” for the purposes of the Regulations and that the Company failed to comply with the requirements imposed by the Regulations to verify their customers’ identity, imposing a penalty of £14,641.
- The FTT agreed finding that HMRC was not the company’s customer, but reduced the penalty to £2,500. OTRL appealed.
The Upper Tribunal upheld the FTT decision and dismissed the appeal:
- The Company was a tax adviser and was not, as they contended, simply agreeing to act as a recipient of a cheque from HMRC and charging for that service. It was prepared to tell employees how much relief they might obtain and how they should claim it in return for a fee if the claim succeeded.
- A contract and therefore business relationship was entered into before the claims went to HMRC not when the payslip was received. The company should have verified the employees’ identities on entering into the contracts.
The UT went on to discuss another ground of appeal which OTRL did not, but, in its view, could have raised, that of whether the business relationships the company has with its customers were of sufficient duration for the Regulations to apply. The tribunal felt that they may not be but was not able to determine the case on that point as OTRL had not raised it. As the tribunal said however it may be a point worth noting in case it is relevant in future cases of this nature.
With the Fifth Anti-Money Laundering Directive seeking to expand the definition of tax adviser, with effect in the UK from January 2020, it may be that other similar online service providers need to check whether they are meeting the requirements of their money laundering supervising body.
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