ET advice with potential HMRC investigation

[PurpleSue]

Not sure if I'm posting this in the correct section as it relates to a ET and HMRC but here goes.

 

I took over as a Treasurer last year for a local charity run Pre-school which had to be closed down due to lack of funds and all staff were made redundant and paid accordingly, my work was voluntary and I received no payment.

 

Two of the staff members are now seeking for 'non-payment of contractual sums' via the employment tribunal, both sums in dispute were from before my time in office so I completed a quick audit of the accounts and can happily defend both cases (signed receipts from employee of grants received).

 

My problem is, during my audit I have discovered two things:

1/ Girl A - Received several payments 'tax free'; at least 3 x £500 during 2009 - 2010. There are emails from the Manager to the then treasurer telling her to do this!!!

 

2/ Girl B - Had her timesheet hours shaved for several weeks leading up to the qualifying weeks for her SMP and then they paid the shaved hours during the qualifying weeks so she could claim SMP in 2007. Without these additional hours during this period she would not have qualified. The original timesheets actually still have their handwritten notes on stating the number of hours to be carried over into the QW!!!!

 

The four girls involved in these actions are all friends and have supplied statements to the ET stating the contractual sums they are claiming were not paid during 2008 - 2010, the SMP doesn't form any part of Girl B's claim.

 

My questions are:

What do I do with this information?

If I pass these facts to HMRC and there is an investigation, will it affect the ET?

 

Thank you in advance for any help and advice you can offer in this matter.

[foodandbeverage]

What has happened to this charity? Has it closed down (sorry not too familiar with charities)?

 

How and why are you involved?

 

What exactly are these girls claiming?

 

Why do you mention HMRC?

[Pusillanimous]

It is illegal to pay wages in cash if the aim is to evade tax. Problem is, PurpleSue, is that the tax is the employer's responsibility, so would probably impact on the charity, rather than the girls. They will probably get a tax bill from HMRC, but the charity could be fined. This would be dealt with by the Commissioners of Inland Revenue. The ET is an entirely different court of law, so I doubt it will impact the Employment Tribunal. However, it could paint the charity as a little bit shady when it comes to tax.

[PurpleSue]

Thanks for your response Pusillanimous.

 

The Charity was closed in November and everyone was made redundant while we still had the funds to pay the redundancies and other debts.

 

I took over as Treasurer in early 2012 not realising the financial problems or my responsibilities.... lesson learnt there!!!

The previous Treasurer was in office from 1999 up to 2012, she controlled the finances in there entirety up till early 2012 but continued doing the payroll until the end.

 

Girl A is claiming non payment of a grant due from the council for training in 2008 - 2010. There are signed receipts for these payments but I have also found additional payments made which did not go through the paye system. The council contract states all payments are subject to tax & NI

Girl B is claiming that she had worked more hours than she had and therefore thinks she was due more redundancy. She was paid her contracted hours in redundancy but had never worked the additional hours she had claimed to prior to my arrival. Going through her working hours on the payroll printout it is obvious that the hours in 2007 were 'adjusted' for the qualifying period to allow her to claim statutory Maternity pay.

 

Because of the 'tax free' payments and the adjusted figures I am concerned the HMRC may be interested.

 

The tribunal Judge has stated that I am the 'spokes person' for the committee members but the liability and responsibility is with the members in office at the time of any actions...... this makes me feel a little better but I will say the previous Treasurer isn't being very helpful I thought because she has been friends with the claimants and has been for years, guessing now there may be more to it!!!!

[Pusillanimous]

Personally, I would put it all in a witness statement, but factually, without any conjecture about friendships or motives. It is an ethical issue. If someone is being dishonest then it is immoral they should gain from it. It is tantamount to fraud if they are claiming money they know they have already had, made worse by being "off the books".

 

Just state the facts as you know them.

[PurpleSue]

Thank you, that is exactly what I thought.

Obviously I have the signed receipts and emails they've sent to each other about the payments, even some direct transfers showing on the bank statement so I feel confident the money isn't due.

 

I'm stunned that despite the money they seemed to have gained already they are willing to proceed to a tribunal knowing full well they could potentially have been involved in fraud... I only imagine they didn't think it would be uncovered or forgot all the paperwork was left behind.

 

I will keep all the information factual and only from the paperwork I have uncovered as I presume the Judge can or is likely to refer the matter to HMRC.

Thanks again.

[foodandbeverage]

Hmmm...not sure if I follow. Wouldn't it be up to the committee members to appoint the person as their representative and not the judge?

 

What contractual sums are they claiming? How old are these girls, if you don't mind me asking? (No, I don't need their names or numbers!)

[PurpleSue]

I was originally elected by the current committee members as the case involved finances and I have some accounts knowledge. The previous treasurer who should be there standing up to account for her actions wouldn't answer our calls, mails etc. I asked the ET judge for an Order Amendment to include all the committee members (8 over the period involved) because the as a charity which has ceased, the liability falls on us as individuals. This is when the Judge wrote stating each committee member is responsible for their own actions during their time in office but we continue with the one spokesperson for him to address. The other Committee members will provide statements etc.

 

The pair are aged between 40 and 50..... I used girls as a loose term, 'ladies' just didn't seem fitting somehow.

[foodandbeverage]

Okay, so what exactly are they claiming - what have they stated on their forms?

 

You stated there were four of them claiming?

[PurpleSue]

Only 2 claims.

 

1st person - Breach of contract, non payment of a grant issued by our local council. The money was due and paid between 2008 - 2010 (3 payments from the council, one in each year). There are 3 signed receipts for these and the payments showing, not all through the payroll though.

 

2nd person - claiming she worked more hours than she did. This relates to her redundancy payment, the redundancy was paid on her contracted hours. She worked overtime for a month in 2012 and believes that should have been included in the redundancy calculation especially as there were other times over the years that she had worked overtime!!!!

I took a quick look at the payroll printouts for this person just to see if she really did work these additional hours on an annual basis only to discover a short period of 'higher' sums paid, they stuck out like a sore thumb to be honest. On closer inspection I discovered that not all the sums due in the 3 months prior to this period had NOT been paid but they had kept a tally of the unpaid sums and then distributed those equally during the 6 week qualifying period (she was pregnant at that time). By doing this it allowed her to claim the Statutory Maternity Pay.

 

I hope that helps you to understand the situation a little better as I appreciate all thoughts and comments on this.

[PurpleSue]

Foodandbeverage..... I see where you thought there were 4 claims.

Four involved in the 'events and claims' - the Two girls making the claims; the previous treasurer who made the payments (3rd person) and the manager (4th person) who seems to have received and sent the messages and instructions on the tax free payments and the timesheet adjustments re the SMP.

Sorry if I've confused the issue.

[foodandbeverage]

Okay, that's a bit more clear (i think).

 

There are two separate issues here: the ET claim and tax compliance. As this is not a tax forum it is not appropriate for me to make comments relating to such matters but I am sure that you are aware of tax implications from your accounting background.

 

For each of these girls dig out their contracts and see their t&c and what they are entitled to first.

 

GIRL A

 

Find out what should have been paid and what has been paid. Hopefully there is no variation to this. Being paid in cash is shoddy practice that leaves no audit trail. When you say signed receipts do you mean that she signed to confirm receipt of payment?

 

GIRL B

 

You need to check the contract to see what they are entitled to under redundancy payment. If there was no policy ensure that it was in accordance to statutory requirements. She cannot used OT to bump up her weekly wage in order to get a higher redundancy payment - again, her contract will clarify this.

 

Have you sent the ET3 yet?

[PurpleSue]

I thought this question was best placed here as my question really relates to the ET hearing and how if it may be affected by the tax issue that the previous treasurer may have created.

 

HMRC will need to know about any tax evasion but how will that affect the employment case?

 

Will I need to notify the ET prior to the case if an investigation into the tax affairs are going ahead by the Inland Revenue?

 

Is the hearing likely to be postponed until after the tax office have reached any conclusion?

 

I'm not looking for a postponement, quite the opposite to be honest, we want this done and dusted so we can all move on.

 

Yes the ET3 has been submitted.

[Emmzzi]

"women" is a perfectly acceptable alternative to "girls" or "ladies" and is quite accurate too.

[PurpleSue]

Thank you Emmzzi, I'll remember that for next time.

[steampowered]

In relation to Girl A, my understanding is that employers are responsible for deducting income tax and NI. If this is not done I believe the employer is liable for the unpaid tax, which cannot be recovered from the employee. Accordingly there is nothing to be achieved by informing HMRC. Grateful if anyone can confirm this.

 

In relation to Girl B, please correct me if I have misunderstood your post but it sounds like pay/timesheets were effectively falsified in order to claim more maternity pay from the government. Wages were being reported to DWP as relating to the qualifying period when they did not relate to this period. I am not an expert on these matters so I do not know whether moving pay around like this is legal, but I would guess that it isn't and if this is correct it seems to me that the charity could be seen as guilty of a conspiracy to defraud the Department of Work and Pensions. I am using very evocative language here and do not mean to upset you, my point is to illustrate that this could easily come back to bite the charity as much as it could bite Girl B.

 

Personally I would avoid contacting HMRC or DWP and would just focus on defending the claims in front of you. An investigation by HMRC or DWP would be more likely to cause problems for the charity than the girls and would not affect the ET proceedings.

[PurpleSue]

Thank you steampowered, it was the affect on the ET proceedings that was my main concern, I just want to go and present the committee's defence and get it over with.

 

You've understood the situation in regard to Claimant B perfectly.

If the previous treasurer had not adjusted the figures in this way then the claimant would not have qualified or been entitled to the SMP payments.

[ericsbrother]

Agree with steampowered, deal with the issues as they arise. You will have to inform HMRC about the discrepancies at some point if the correct tax and NI contributions havent been paid but ultimately it is the individals who are responsible for their own tax affairs so they will have to find any shortfall, as do all of us if we underpay in any particular year.

As treasurer you are responsible for ensuring that things are done properly and lawfully. This means that you will be answerable for any debts if there isnt any money left in the charity. However, you will not be criminally responsible for what your predecessor did but I suspect you may be asked to provide witness statements at some point in the future

[SweetLorraine]

..... This means that you will be answerable for any debts if there isnt any money left in the charity.

 

.... but not personally liable for all the losses. Do you know the legal structure of the charity? - i.e. was it unincorporated or incorporated and/or what type of (un)incorporated charity it was?

 

If the tax and police become involved it may delay the start date of the ET.

 

No witness is going to come along to a public civil hearing and answer questions which potentially could be then used against them in a subsequent criminal trial.

Edited March 21, 2013 by SweetLorraine

[PurpleSue]

Good evening and thanks for the comments, all very helpful to me.

 

Interesting comments from SweetLorraine on anyone not wanting to appear at an ET whereby they may prejudice themselves. On that note I have an update...... I received a call today informing me that Woman 2 (who received the SMP payments and wanted more redundancy money to account for her overtime loss) has / is withdrawing her claim!!!! I haven't received this officially from the Tribunal yet but guess she can just withdraw her claim without giving them an explanation. If she does give a reason to the tribunal will they pass that information on to me?

 

The charity was 'unincorporated' so the committee are liable after the event for any losses etc. which occurred during "their time in office",.

[Pusillanimous]

Sounds like she's had a tip off. Best policy is to do the right thing, and that is to report it.