Reference no: EM131732589

Question - Your sister is married to Mike "Shifty" Pashley. Shifty describes himself as an entrepreneur and works as both a sole trader and through two limited companies. Shifty is buying and selling foodstuffs of various types.  Shifty has two retail outlets in the local town. You know from the accounts that Shifty has a large cash turnover. Shifty buys food left-over from food manufacturers who have large orders from    supermarket chains for fruit-pies and other food products by the million. The reason for these food sales to Shifty is that a food manufacturer may have an order for 100,000 dozen 500 gram packs of coleslaw. To cover the order the manufacturer makes 105% of the order knowing there will be some processing losses in the order of 5%. If the losses are smaller than expected the manufacturer has spare coleslaw which is sold to businesses like Shifty's.

Shifty buys the food and repacks it in his own label packaging. The packaging is cheap plastic bags, cartons and cardboard boxes with appropriate sticky labels with the product's name and price.

Fudgitt & Tickoff have received a letter from HMRC telling you that they propose visiting your office next week to examine Shifty's accounts and records. To date you have kept your link with Shifty a closely guarded secret because one of the partners said that Shifty would probably end up in jail for something.

From analysis of the payroll you know Shifty and your sister receive and income of around £100,000 from the two companies. Over the last couple of years Shifty has made comments about informal dividends and brown envelope jobs. These comments you have ignored and laughed off until now. Shifty mentioned on more than one occasion that he uses your firm because he knows you are meticulous book-keepers. Whenever you go out for a meal with Shifty he always insists on paying for everybody, in cash. You are very tempted to use your mobile phone to contact your sister and let her know what is happening.

Required

Briefly explain the legal issues here and then deal with the following questions.

Should you keep quiet to Fudgitt & Tickoff about your family ties with Shifty?

Should you let your sister know about the HMRC visit?