{"id":9549,"date":"2021-05-10T18:00:27","date_gmt":"2021-05-10T17:00:27","guid":{"rendered":"https:\/\/www.sage.com\/en-gb\/blog\/?p=9549"},"modified":"2026-01-29T09:44:51","modified_gmt":"2026-01-29T09:44:51","slug":"anti-money-laundering-insights-accountants","status":"publish","type":"post","link":"https:\/\/www.sage.com\/en-gb\/blog\/anti-money-laundering-insights-accountants\/","title":{"rendered":"Anti-money laundering and risk: 6 insights from an HMRC tax investigator to help accountants"},"content":{"rendered":"
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\n\t\t\t\t\t\t\tStrategy, Legal & Operations<\/a>\t\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t
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\n\t\t\t\t\t\tAnti-money laundering and risk: 6 insights from an HMRC tax investigator to help accountants\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t

\n\t\t\t\t\t\t\t\t\t\t\t<\/p>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n\t\t

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\n\t\t\t\n\t\t\t\t\"James\t\t\t\tJames Byrne<\/span>\n\t\t\t<\/a>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n<\/div>\n\n\n\n

When it comes to anti-money laundering, John Groves certainly knows his stuff.<\/p>\n\n\n\n

He spent 45 years at HMRC, including time as the Hidden Economies team<\/a> liaison manager within HMRC\u2019s Risk and Intelligence Service.<\/p>\n\n\n\n

Now, John works in practice and acts as an adviser to the team at AccountancyManager, recently helping to refresh the risk management section of the business.<\/p>\n\n\n\n

John\u2019s passion for risk \u2013 and unearthing the truth \u2013 is palpable. His stories of tense meetings with fraudsters, tax dodgers and innocent victims of money laundering could be a Netflix drama.<\/p>\n\n\n\n

As such, parts of our chat had an \u2018off-the-record, please\u2019 caveat.<\/p>\n\n\n\n

In this article, John shares six insights that will help accountants and their teams. Read on to see how he can help you. Here\u2019s what is covered:<\/p>\n\n\n\n

1. Make assessing risk an ongoing process at your firm<\/a><\/p>\n\n\n\n

2. Keep an eye on \u2018no net liability\u2019 tax returns<\/a><\/p>\n\n\n\n

3. Don\u2019t underestimate how much intel HMRC has on your client<\/a><\/p>\n\n\n\n

4. Decide whether a lack of IT skills is a deal breaker<\/a><\/p>\n\n\n\n

5. Prepare for a second wave of self-employment<\/a><\/p>\n\n\n\n

6. Always question why you\u2019re being brought on<\/a><\/p>\n\n\n\n

1. Make assessing risk an ongoing process at your firm<\/h2>\n\n\n\n

Any accountant worth their salt (and licence) will complete anti-money laundering ID checks, credit screens and a risk assessment for all new clients. But the risk of money laundering doesn\u2019t just go away after onboarding.<\/p>\n\n\n\n

\u201cMoney laundering comes in all shapes and sizes,\u201d explains John. \u201cIt can be just somebody asking you to use your bank account to hold money for example.<\/p>\n\n\n\n

\u201cAs such, assessing risk shouldn\u2019t be seen simply as a box-ticking activity, but as an ongoing process.\u201d<\/p>\n\n\n\n

Top tip<\/strong><\/h3>\n\n\n\n

As well as formal, annual risk assessments, you should stay vigilant for red flags throughout the year, both in conversations with your clients and, of course, in their tax returns.<\/p>\n\n\n\n

2. Keep an eye on \u2018no net liability\u2019 tax returns<\/h2>\n\n\n\n

A tax return that results in no tax to pay will be a red flag for HMRC \u2013 so it should be for you too.<\/p>\n\n\n\n

\u201cIf you have a tax return where the client has no net liability, the question will arise: What are they living on?<\/p>\n\n\n\n

\u201cWhat you\u2019re telling the taxman is: \u2018Yes, this person is feeding and clothing themselves and their family, paying rent or a mortgage, additional bills like insurance, possibly holidays, probably running a vehicle \u2013 all on less than \u00a312,000.\u2019<\/p>\n\n\n\n

\u201cIt\u2019s just not possible.<\/p>\n\n\n\n

\u201cA much harder issue to address, but a main issue around money laundering, is \u2013 have they got the means to support their lifestyle?\u201d<\/p>\n\n\n\n

Of course, there may be legitimate reasons \u2013 a partner\u2019s income for example \u2013 but it\u2019s crucial that you ask the question and record the response in your files.<\/p>\n\n\n\n

John says: \u201cWhat you don’t want is a compliance check into a client’s tax return where the client says they’ve got no liability and all of a sudden, HMRC are coming up with data on third party information that says, well, this is what your client has got.<\/p>\n\n\n\n

\u201cAnd you’re sitting there thinking, \u2018we didn’t know that\u2019.<\/p>\n\n\n\n

\u201cHMRC will say \u2018well, did you ask the question?\u2019<\/p>\n\n\n\n

\u201cIt’s not very comfortable for an accountant to be sitting at a meeting with their client and a tax investigator and be given information which they thought never existed.\u201d<\/p>\n\n\n\n

Top tip<\/strong><\/h3>\n\n\n\n

Rather than interrogate your client with blunt questions regarding their lifestyle and personal affairs, take a two-pronged approach \u2013 formal and informal.<\/p>\n\n\n\n

Make sure the basic information you hold on your clients is correct and check periodically that things haven\u2019t changed with a simple \u2018please review your info\u2019 emails.<\/p>\n\n\n\n

For extra information, longer than a tick in a box or a word or two, capture information that comes up in casual conversation and store it as part of your ongoing risk assessment process.<\/p>\n\n\n\n

This can then be added as additional information on tax returns explaining no liability \u2013 HMRC will like that.<\/p>\n\n\n\n

3. Don\u2019t underestimate how much intel HMRC has on your client<\/h2>\n\n\n\n

John says you should never underestimate the level of intelligence an HMRC investigator is likely to have on your client \u2013 before your client gets the dreaded knock.<\/p>\n\n\n\n

(It often is a real knock. If someone is being investigated and brown envelopes haven\u2019t done the trick, someone like John will come to their door.)<\/p>\n\n\n\n

\u201cHMRC will build a profile of anyone they might potentially investigate and the systems are quite sophisticated now,\u201d says John.<\/p>\n\n\n\n

\u201cThey will actually see what connections [your client has] to third parties. So, it’s important that you have that information too.<\/p>\n\n\n\n

\u201cI know I’m sounding a bit like a policeman. But you’ve got to think \u2018Is this a legitimate business this person is setting up?\u2019 especially if it’s a limited company.\u201d<\/p>\n\n\n\n

Top tip<\/strong><\/h3>\n\n\n\n

John emphasises the importance of being welcoming to new clients, while at the same time measuring the risks.<\/p>\n\n\n\n

That\u2019s for the client, for their company and for you \u2013 and understanding as much about their business as possible.<\/p>\n\n\n\n

He says: \u201cKnowing your client and having a good working relationship in terms of both the customer service side and the compliance side, is essential.<\/p>\n\n\n\n

\u201cAnd I’m sure a lot of accountants, the good ones, will have that.\u201d<\/p>\n\n\n\n

4. Decide whether a lack of IT skills is a deal breaker<\/h2>\n\n\n\n

John is a self-confessed \u2018late-adopter\u2019 when it comes to technology, favouring a phone call over Zoom for our chat. He readily admits that it\u2019s the likes of him you need to be wary of.<\/p>\n\n\n\n

John says: \u201cCheck what [the client\u2019s] IT skills are like and whether they\u2019ll engage with it.<\/p>\n\n\n\n

I don’t pretend to be IT literate, but I’m working with Alex [former HMRC senior district Tax Inspector at Accounts and Returns] and people at AccountancyManager and they\u2019re all really kind and patient.<\/p>\n\n\n\n

“That in itself is a skill.\u201d<\/p>\n\n\n\n

Top tip<\/strong><\/h3>\n\n\n\n

\u201cCompanies have to develop the personal skills to deal with clients who are reluctant to use technology. Not because they don\u2019t want to, but because they\u2019re a little bit scared,\u201d says John.<\/p>\n\n\n\n

\u201cIt’s actually taking them through the process so that they build up confidence. It’s having that support mechanism in the background.\u201d<\/p>\n\n\n\n

5. Prepare for a second wave of self-employment<\/h2>\n\n\n\n

John\u2019s career spans almost 40 years. In that time, he\u2019s seen a dramatic rise in self-employment \u2013 and he\u2019s expecting another soon.<\/p>\n\n\n\n

\u201cThe figure at the moment of self-employed people in this country must be in the range of about four to five million people. That is a significant, major factor in financing this country.\u201d<\/p>\n\n\n\n

\u201cWhen I first started in the service, the kind of people that went into self-employment tended to follow in the footsteps of their families.<\/p>\n\n\n\n

“That started to change rapidly in the 1980s and 1990s.<\/p>\n\n\n\n

“People working for the same company for 10, 15 years were made redundant and went self-employed for the first time.<\/p>\n\n\n\n

\u201cOne of the things that will probably come out of this pandemic is not just a reduction in people being employed, but an increase of people going self-employed \u2013 because they need work.<\/p>\n\n\n\n

\u201cSome people plan to go self-employed because it\u2019s their ambition, but some are forced down that route. That’s a different kind of client…\u201d<\/p>\n\n\n\n

Top tip<\/strong><\/h3>\n\n\n\n

John didn\u2019t say it directly (he\u2019s good at that), so we will: these clients may carry a higher risk, so it pays to do your due diligence.<\/p>\n\n\n\n

This ties in with the next point \u2013 questioning why a prospective client needs your services and support.<\/p>\n\n\n\n

6. Always question why you\u2019re being brought on<\/h2>\n\n\n\n

There\u2019s another, more sinister reason for due diligence at the start of a relationship.<\/p>\n\n\n\n

As John explains: \u201cFrom my perspective as an HMRC tax inspector, I\u2019d start an investigation and quite often the person I was investigating had obviously just brought in an accountant or an agent to assist him with the [HMRC] enquiries.<\/p>\n\n\n\n

\u201cYou quickly find out those agents who seem to keep their distance, know very little and just rely on whatever the client has said to them.<\/p>\n\n\n\n

\u201cThen in parrot fashion, repeat it back to HMRC.<\/p>\n\n\n\n

\u201cAnd I\u2019d think, \u2018So do you actually understand anything about your client?\u2019 I’m just giving you that perspective.<\/p>\n\n\n\n

\u201cIt’s really important that the agent, the accountant, understand their client\u2019s base needs.\u201d<\/p>\n\n\n\n

Top tip<\/strong><\/h3>\n\n\n\n

Make sure you build this line of questioning into your onboarding process and initial risk assessment.<\/p>\n\n\n\n

Not just around why the prospect has come to you \u2013 try to build a full timeline that led to your conversation.<\/p>\n\n\n\n

Don\u2019t just take the first response either.<\/p>\n\n\n\n

Dig deeper into the story, continuing to ask, \u201cSo why is that?\u201d to fill in the gaps.<\/p>\n\n\n\n

A final story<\/strong><\/h2>\n\n\n\n

I\u2019ll leave you with a great memory of John\u2019s, which recalls a time back when he was first learning the tax investigation ropes.<\/p>\n\n\n\n

After leaving the office of someone under investigation for fraud, John\u2019s senior implied certain guilt.<\/p>\n\n\n\n

Why?<\/p>\n\n\n\n

The suspect had presented John and his boss with an immaculate, handwritten logbook. He had allegedly used it every day to record transactions for years.<\/p>\n\n\n\n

No scuffed edges, no amendments and written beautifully, with the same pen. \u201cYou could almost smell the ink,\u201d says John.<\/p>\n\n\n\n

The moral of the story? John likens HMRC tax investigators to detectives, so maybe you should dust off the old deerstalker too.<\/p>\n\n\n

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