Criminal Finances Act 2017

Corporate offences of failure to prevent the criminal facilitation of tax evasion

The Criminal Finances Act came into force on 30 September 2017. It contains the following corporate offences of failure to prevent the criminal facilitation of tax evasion. In summary, offences contained in the act aim to make relevant bodies criminally liable where they fail to prevent those who act for, or on their behalf from criminally facilitating tax evasion. The offences cover both UK and foreign tax evasion, with separate offences for each.

What is criminal tax evasion?

“Criminal tax evasion is conduct that constitutes the common law offence of cheating the public revenue or statutory offences of fraudulently evading taxes, such as income tax and VAT. It is not essential that the taxpayer is convicted or even prosecuted to bring a prosecution against a relevant body under the legislation. In such circumstances, perhaps where the taxpayer has acted as a whistleblower, the prosecution would still have to prove beyond all reasonable doubt that the taxpayer level offence has been committed.

Criminal evasion occurs when a person knows they have a tax liability and forms a dishonest intention not to declare it. It does not arise when a person makes a mistake or is careless. Nor does it apply when a person actively seeks to avoid tax, even if the planning in question does not work, provided that the person has an honest belief when filing his tax return.” Source: HMRC

The penalties

With the new act in place, any business that commits one of these offences could face an unlimited financial penalty, or confiscation or serious crime prevention orders.

Such cases may require disclosure to regulators and could prevent businesses being awarded public contracts. Aside from financial consequences, there could be reputational damage for the business.

What actions should you be taking?

Your business needs to implement and operate a system of reasonable prevention procedures that identifies and mitigates its tax evasion facilitation risks. This provides a sound defence against prosecution. HMRC has published guidance explaining six principles that should be considered when establishing such policies:

  1. Risk assessment;
  2. Proportionality of risk-based prevention procedures;
  3. Top level commitment;
  4. Due diligence;
  5. Communication (including training);
  6. Monitoring.

In order to protect your business, we strongly advise that your business has written policies and procedures. Without such documents it is much more difficult to show that you have taken appropriate action.

Lower risk SMEs

Within the guidance, HMRC has included some ‘suggested reasonable prevention procedures for lower risk SMEs’, which may apply to some of you as our clients.

An SME should first undertake a risk assessment of the products and services offered, as well as internal systems and client data that might facilitate tax evasion. ‘Sit at the desk’ of employees and associated persons, and consider the motive, means and opportunities for facilitating tax evasion.

You should consider some of the ‘red flags’ when undertaking the risk assessment, such as:

  • Are there staff who refuse to take leave and do not allow anyone else to review their files, or are overly defensive over client relationships?
  • Do existing processes ensure that for higher risk activity at least a sample of files are routinely reviewed by a second pair of eyes?

Furthermore, consider tailoring existing procedures to prevent and detect potential tax evasion facilitation:

  • Having a commitment to preventing the criminal facilitation of tax evasion, through a prominent message from the board of directors;
  • Having terms in contracts requiring them not to engage in facilitating tax evasion and to report any concerns;
  •  Providing regular training for staff;
  • Monitoring and enforcing compliance with prevention procedures;
  • Having regular reviews of the effectiveness of prevention procedures and reviewing them where necessary.

Please note that this Tax facts page is for general information purposes only. You should seek professional advice before you take any action, or refrain from, as a result of information contained herein. Content last updated: 29/6/18.

For more information

Please call our Tax advisory team on:

01483 416232