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Anti Money Laundering legislation


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Anti Money Laundering Legislation

Strict anti money laundering laws (The Proceeds of Crime Act 2002) came into force on 1 March 2004. Whilst most people think of crime as bank robberies etc. it also encompasses matters such as tax evasion, and these new laws oblige accountants to report all such cases to the Serious Organised Crime Agency (SOCA), regardless of the sums involved.

Simple errors in tax and VAT returns in themselves do not constitute tax evasion (money laundering), but where these go uncorrected having previously been pointed out by an accountant, then the accountant is obliged to make a confidential report to SOCA.

The regulations require accountants to verify a new client's identity and address, and to retain documentary evidence of this. Potential new clients will therefore be asked to bring their passport or driving licence, as well as a utility bill to their initial meeting.



This piece of tax legislation came into effect in April 2000, affecting the tax year ended 5 April 2001. It was initially tested in the courts by the Professional Contractors Group, but the case was won by the Inland Revenue (now HM Revenue and Customs) – thus the courts accepted the legislation as passed. However, more recent cases have been won by contractors thereby making the situation less clear.

The essence of IR35 is that if you sell your services (rather than goods) via a partnership or limited company you have to consider the relationship between the customer and the worker. If that relationship would be the equivalent of an employee/employer relationship (if the partnership or company did not exist), then the tax rules laid down in IR35 apply.

In a recent court case it was decided that a contractor who's services were caught under the IR35 legislation was deemed to be an employee of the customer, and normal employment law applied. We will have to wait to see whether this is the beginning of the end for IR35.

Each case has to be considered on its own merits, and it is possible for a contractor to have some contracts where IR35 applies and some where it does not.

The taxman's take on this subject can be read here.



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