Friday Highlight 

Cracking down on those facilitating tax evasion

Cracking down on those facilitating tax evasion

The Criminal Finances Act 2017, which received royal assent on 27 April and came into force on 30 September, introduces two new corporate offences relating to failing to prevent the facilitation of tax evasion.

One relates to offences within the UK, while the other relates to non-UK tax evasion.

It comes at a time when there has been a significant rise in ‘tax evasion’ prosecutions of both businesses and their professional advisers. Revenue and Customs commenced prosecutions against 1,135 individuals for tax offences in 2015-16 (easily beating their published target of 1,000).

The Criminal Finances Act is billed by some as the British response to the Panama Papers scandal in 2015. However, the Act has had a longer germination period than that, with the legislation being ordered by the previous Prime Minister David Cameron to tackle what was perceived as widespread tax evasion and which was taking place on a scale not seen before.

The Act does not create additional criminal conduct in respect of the tax evasion, rather it widens the scope of those who can be ‘caught’ by enforcement and criminally prosecuted.

It aims to take the profit out of tax evasion, with the twin approach of both recovering the lost revenue and where necessary prosecuting individuals, companies and their associates who are involved in this activity.

Those third parties can include banks, advisory firms and individuals who have profited from tax evasion.

The Act also makes a business potentially criminally liable for the unlawful actions of its employees.

With the Act now in force, all conduct will be judged against these standards and businesses will be held accountable for what's happening in their firm, whether they are ready or not.

To avoid being caught by the Act, HMRC guidance states that businesses must have "reasonable procedures" in place to ensure that employees are not helping someone evade their taxes, wherever in the world it is owed.

Key elements to the offence

The key elements to the offence are:

  • Two new corporate offences: failure to prevent facilitation of domestic tax evasion offences and failure to prevent facilitation of overseas tax evasion offences.
  • A relevant body will be criminally liable where a person representing the corporate during the course of business (that is, an "associated person") criminally facilitates the evasion of tax by others, and the corporate in question did not have in place reasonable procedures to prevent the facilitation of tax evasion.

The definition of associated person is wide and covers employees, agents and "any other person who performs services for or on behalf of the relevant body" including accountants and service providers.

The offence will also apply in respect of the facilitation of non-UK tax evasion if it involves a UK entity or branch or if any part of the facilitation takes place in the UK.

Unlimited fines can be imposed upon conviction and orders for confiscation of assets may also be made.

What must you do

The only defence available under the Act is that you have in place reasonable procedures designed to prevent persons associated with the business from facilitating tax evasion.

The strength of those reasonable procedures will depend on what is proportionate given the risks inherent in the business and its sector. Businesses will therefore have to mitigate the risk and carry out a formal and structured risk assessment.

The HMRC guidance sets out six principles to take into account in formulating procedures to prevent falling foul of the new offence and which must be implemented straight away:

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