Customers Cheating The Taxman

It is a fact that some people simply do not want to pay their way through life, and try and find any way they can to reduce their costs and outgoings to a minimum, even if it means failing to pay their dues by avoidance.  By this I mean taxes. By fair means or foul.

Value Added Tax, Income Tax or any other kind of taxation becomes a personal challenge to these people, when trying to avoid paying their taxes.  I suppose I should say, Tax Evasion, as Tax Avoidance is quite legal, and encouraged by Accountants. Mitigating or reducing your tax burden is one thing. Deliberately trying to cheat the Taxman is quite another, especially when they try to involve a Third Party into breaking the Law.

Unfortunately, this is not a new problem. For many years – certainly the past fifty as far as I am concerned – certain clients seem to think it is quite acceptable to coerce small companies into evading tax, either by false documentation or cash payments.

I find this attitude most annoying, because they would never have the nerve to make such suggestions to large firms – only to those they deem to be malleable, small, and unwilling to lose the business.

There are many examples of this attitude, including the customer who asks you to invoice their Company for works completed at their business premises, for work they had carried out at home. Invoice for ‘Office Cleaning’ if they do not have any outside grounds, or ‘Grounds Maintenance’ if they have a tiny car park or courtyard.

Some even expect it to be a regular occurrence.  Weekly home visits are to have the invoice either split between their home and business, or totally misrepresented by never mentioning their home, only the business premises.

Another example is a dentist, who asked the landscaper to provide him with a separate invoice in the sum of £8,000.00 plus VAT for works carried out at his practice premises. The Contractor had carried out a larger project at the dentist’s house, but he wanted and expected the contractor to reduce his personal debt by £9,600.00 (inc VAT) with a fabricated invoice, although the Contractor had never set foot in the place.

You will all have similar stories, ranging from a few pounds to many thousands, of offers of cash payments to avoid VAT, making out the bill to a Third Party or a host of other ‘Indecent Proposals’

Other claims may be made that there is no VAT payable on new builds. This is a common device, but you should be aware that the Contractor cannot make that decision. It is up to the owner to reclaim any overpaid VAT, nothing whatsoever to do with the Contractor.

Disabilities are often raised as being reasons why VAT should not be charged on projects. This announcement may only be made at the end of the job, when the invoice is raised, when they express surprise and even aggression that the contractor is trying to claim VAT for zero rated works, and taking advantage of their disability.  Once again, this is not a matter for the contractor. If the client is genuinely allowed to reclaim the tax, it is precisely that – reclaiming tax paid on a zero rated project. The invoice must be paid, in full, as per the terms of the Contract.

(New builds or specialist builders will already have this documentation and procedure in hand, and so stories of zero rating may apply to those firms, but not to landscapers and garden designers.)

Be in no doubt. If this happens to you, you are being asked to become complicit in an illegal process, one that could land one or both of you in Court. As the Contractor, HM Customs and Excise has much greater leverage and pressure over you, which would be placed on you as the ‘professional’ Party involved, fairly or unfairly.

At the slightest hint of impropriety, the Taxman can arrive on your doorstep without warning and take away all of your books, computers, records and all documents, effectively shutting your business down in seconds. You could be forced into administration by having everything seized as evidence, making it impossible to continue in business whilst a case is investigated/compiled against you.

You can reduce the risk of any misunderstanding between yourself and your clients by operating a system that is transparent from the outset, and adhering firmly to it.

Even if you are a sole operator, with no employees, you should act as though you are totally professional firm from the outset. By having compliances in place, with all documentation that would be expected in a large company, you will seriously reduce the risk of being asked and expected to become complicit in any illegal schemes.

These compliances will be essential once your business starts to grow, and the earlier you have them in place, the more professional your company image will become, sooner rather than later.

Begin with a simple document, produced on your headed notepaper. This may be headed with your company name repeated at the head of the wording, then include your company profile information. This should include Insurance details, Bankers details including sort code, Waste Management certificate details and any other ‘Establishment’ information that you may have.  This becomes your foundation statement, and shows that you are a professional firm, and thus less likely to be willing to be compromised with offers of illicit ‘deals’.

I have known too, occasions where the customer has suddenly announced that the works must be completed on a cash basis, as they have run out of money. Either take the cash or absorb the VAT. Either you are prepared to accept the large drop in profit on the project, or walk away. I am not going to advise you on that matter.

Bear in mind however, that should you decide to accept the situation, and accept cash no VAT, everything that has gone before becomes meaningless. The contract would have been breached by both Parties. All Terms & Conditions would be void, any warranties no longer valid as you have jointly decided to scrap the contract documents, and neither Party can refer to them or rely upon them once breached.

In summary, when a client asks you to break the Law, consider if it is really worth taking the risk of losing your business, potentially your house and marriage – possibly even gaining a criminal record, and with the taxman looking over your shoulder for the rest of your life just to save someone else from paying their dues.

Ensure your paperwork is professional, terms and conditions watertight, documents including quotations and specification are sound, and you will, hopefully, avoid these characters in the first place!