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Investigating Dishonest Behaviour

19 June 2019

One of the most common problems we encounter working with our clients is when an employee acts dishonestly, including when they fraudulently take money from the company for their own personal use.

An interesting case in the First Tier Tribunal has looked as this point to determine whether or not the company is then able to claim VAT bad debt relief in respect of the stolen money.

The decision makes it clear that there is a distinction to be made around when during the transaction the money was taken by the employee. In this case, it was diverted to their own bank account when a customer made a payment over the phone, and so never reached the company’s bank accounts. Consideration was also given to whether or not the employee was acting on behalf of the company at the time, and whether the act was within the scope of his employment. Whilst he was a person authorised to take payments, he was not authorised to divert the funds to his own account, and so was considered to be ‘on a frolic of his own’. Therefore the company could not be held liable for his actions and could claim VAT bad debt relief on the ‘missing payments’.

This decision demonstrates how important it is to carry out a thorough investigation into any potential dishonest behaviour and being able present evidence of the behaviour along with timescales for when the acts happened not only for defending employment decisions but for tax purposes too.

If you need help with investigations or if you have any concerns about an employee’s behaviour, we can help if you get in touch.

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