A money laundering red flag is a feature of a client, its records or its transactions that does not make commercial sense and should prompt a question. No single indicator proves wrongdoing, but accountants in the regulated sector commit an offence if they fail to report where they have reasonable grounds to suspect money laundering, so warning signs must be noticed, asked about and recorded. HMRC’s published list of risks common to accountancy service providers and ICAEW’s 2026 guidance on economic crime indicators are the most practical starting points.

What does a red flag oblige an accountant to do?

Section 330 of the Proceeds of Crime Act 2002 makes it an offence for a person in the regulated sector who knows or suspects, or has reasonable grounds for knowing or suspecting, that another person is engaged in money laundering, and who received the information in the course of that business, not to disclose it to the nominated officer or the National Crime Agency as soon as practicable. The “reasonable grounds” limb is objective: ignoring an obvious warning sign is not a defence.

That does not mean every red flag is a report. ICAEW’s June 2026 article on economic crime indicators says the presence of one indicator does not necessarily mean criminal activity is taking place; it is usually the combination of unusual factors, inconsistencies and unexplained transactions that should prompt further consideration. Accountants are not expected to prove wrongdoing, but to identify concerns, apply judgement and meet their legal obligations. Regulation 33(7) of the Money Laundering Regulations 2017 makes the same point about risk factors.

Asking questions is normally safe. ICAEW’s helpsheet for smaller practices explains that no tipping off offence is committed when enquiries are made of a client about something that properly falls within the normal scope of the engagement, such as asking about an invoice missing from a tax return. See tipping off for where the line sits.

Which client behaviours should prompt questions?

HMRC’s guidance on risks common to accountancy service providers, which HMRC supervised firms must take into account in their own risk assessment, highlights behaviour such as:

  • secrecy about business and financial activities, or explanations that change;
  • reluctance to provide original documents such as bank statements and invoices, or pressure to prepare accounts or returns from incomplete or unverified records;
  • refusing visits to business premises, or allowing access once and then refusing later visits;
  • pressure to cut the tax bill, willingness to take risks to do so, or dismissing advice that a plan may be evasion;
  • splitting accounts, tax and payroll between several providers, or switching accountants often, without a valid reason;
  • approaching through an intermediary with no clear reason why the end client did not come directly, or using an intermediary who should be AML supervised but is not.

ICAEW adds reluctance to provide information needed for customer due diligence. Where the client also refuses to complete CDD, regulation 31 applies and the firm must consider whether a disclosure is required.

Which transaction patterns are warning signs?

Both HMRC and ICAEW focus on numbers that do not fit the business:

  • money flows that do not match the company’s industry, or a company mainly collecting funds and moving them to unrelated accounts;
  • revenue patterns that do not fit the business, such as significant card receipts in the early hours for a business that does not trade at night (ICAEW’s example);
  • sales with no matching stock purchases, a vehicle hire business with no vehicles, or a construction company with no equipment or subcontractor costs;
  • service businesses with high turnover but implausibly low staff costs;
  • loans recorded without evidence that funds were advanced, circular transactions, or unexplained related party balances;
  • repeated requests for financial references to support borrowing with no commercial need, or loans repaid early;
  • a sudden switch from non cash to cash, or a sharp change in transaction values or counterparties;
  • a business that makes continuous losses yet keeps going, or an owner whose lifestyle does not match known income.

Which ownership and structure signs matter most?

Regulation 33(6) lists customer risk factors that include a legal person used as a vehicle for holding personal assets, nominee shareholders or bearer shares, a cash intensive business, and a corporate structure that is unusual or excessively complex for the business. HMRC adds:

  • apparent shell companies with no premises, staff or revenue, especially where money arrives as “loans” from trusts or other non bank companies and is repaid by individuals;
  • frequent changes to beneficial owners, directors or shareholders that do not fit the purpose understood at the outset;
  • services requested for an entity declared dormant at Companies House or HMRC with no valid reason.

ICAEW also flags individuals acting as directors of large numbers of unrelated companies and difficulty identifying the ultimate beneficial owner. These link closely to beneficial ownership verification.

Are there red flags specific to payroll, client money and audit?

Yes. HMRC sets out service specific indicators:

  • Payroll: reluctance to support payroll instructions, refusal to let the firm report to HMRC directly, missing National Insurance numbers or tax codes, round sum salaries, everyone paid the same despite irregular hours, or lower National Insurance than expected. Some of these may point to modern slavery or fabricated employees.
  • Client account: overpaid fees with a request for a refund, funds paid in from unknown or cash sources, and refunds requested to a different account from the one that paid in.
  • Audit: a request for audit alongside other accountancy or company services, which HMRC says can add a layer of legitimacy that criminals value.

Which sectors and locations raise the stakes?

HMRC identifies cash intensive businesses, businesses in financial difficulty (which may accept an unusually generous investor or buyer), labour intensive trades with low margins, businesses reliant on government grants, and industries the firm does not understand well. It also treats links to high risk third countries and other overseas jurisdictions as higher risk, including countries with secrecy laws, unrestricted bearer shares or high levels of tax evasion. ICAEW adds payments routed through several jurisdictions without obvious reason, sectors vulnerable to sanctions evasion, and clients who cannot explain the source, ownership or valuation of cryptoassets. See high risk third countries and sanctions checks.

Tax deserves particular attention. HMRC states that money retained through tax evasion is criminal property, so providing services in relation to those funds may itself be money laundering. The overlap is covered in tax evasion as money laundering.

What should happen when a warning sign appears?

Illustration only. A practice prepares accounts for a small café. The card terminal data shows regular receipts between 2am and 4am, the café closes at 6pm, wages are paid to two staff only despite long opening hours, and the director asks for the accounts to be finalised from bank summaries without purchase invoices. A sensible sequence is:

  1. Ask the director, within the normal scope of the engagement, to explain the night time receipts and provide purchase invoices and staff records.
  2. Record the questions, the answers and the evidence received.
  3. If the explanation is credible and documented (for example, a separate night time catering contract with invoices), update the client risk assessment and carry on.
  4. If it is not, report internally to the MLRO, who decides whether to submit a report to the NCA. Do not tell the client a report is being considered.

The internal and external reporting process is explained in suspicious activity reports for accountants.

What mistakes do firms make with red flags?

  • Treating a list of indicators as a tick box exercise rather than a prompt to think about the specific client.
  • Not asking obvious questions for fear of tipping off.
  • Resolving a concern in conversation but never recording why it was resolved.
  • Accepting records at face value because the client is long standing; HMRC notes that long term relationships are what allow unusual changes to be spotted.
  • Forgetting that a flag seen by a junior on the bookkeeping is information received “in the course of a business in the regulated sector” and needs to reach the MLRO.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.