With effect from 30 September 2017 the Criminal Finances Act 2017 introduces two new corporate criminal offences – one for failure to prevent the facilitation of UK tax evasion and one for failure to prevent facilitation of foreign tax evasion.
The new legislation responds to concerns that there was previously no way to target those businesses that either encouraged or turned a blind eye to facilitation of tax evasion by their employees and other associates.
The new offence applies where all three of the following elements are present:
- A company or partnership fails to prevent
- An associated person (typically an employee, agent, or someone else acting on their behalf) from criminally facilitating
- The criminal evasion of tax by a taxpayer.
Companies / partnerships will have a defence if they can show that they have reasonable procedures in place to prevent facilitation by their associated persons, or that it is unreasonable to expect such procedures to be in place.
It is important for companies and partnerships to appreciate the potential breadth of the new offence. By way of example, an associated person might criminally facilitate the criminal evasion of tax by a taxpayer if an employee prepared a sales invoice to a taxpayer for a legitimate business supply but with a description that was designed to be misleading about the nature of the supply and its tax treatment within the taxpayer’s business. If that occurred, it could constitute an offence unless the business could demonstrate that reasonable procedures were in place that were designed to prevent facilitation. There are no minimum limits provided in respect of the amount of tax evasion.
To prepare for the introduction of these offences, employers should carry out a risk assessment of their business to identify risk areas and ensure that they have reasonable prevention procedures in place.
The consequences for a company or partnership of being found guilty of the offence are severe and include unlimited financial penalties, confiscation orders, serious crime prevention orders, regulatory issues and reputational damage.
This article is intended to alert employers to the existence of this legislation. Further information can be found in the ATT and CIOT’s overview of the new offence. This has been reviewed by HMRC and can be found here. HMRC’s guidance was updated on 1 September and can be found here. The guidance takes effect from the 30 September 2017.
Relevant businesses are recommended to seek specialist help if they are uncertain about how the offence might apply as this is a complex area which interacts with other penalty legislation.