VAT news

Most businesses unaware of the new corporate offence of failing to prevent the facilitation of tax evasion

Gareth Bevan 27 October 2017 No comments

New criminal corporate offence against tax evasion to be introduced

In the Government’s ongoing crackdown against tax evasion a new corporate offence is to be introduced by September 2017. The Criminal Finances Act, which received Royal Assent on 27 April 2017, contains legislation for the new corporate offence of failure to prevent facilitation of tax evasion. The new legislation does not alter what is criminal, it deals with who is held liable for criminal acts of tax evasion.

A YouGov survey of 1,189 senior decision-makers commissioned by Pinsent Masons indicates that 76% of UK businesses are unaware of the new legislation which could result in an unlimited fine and criminal conviction.

What is the new offence?

An offence will be committed where a business fails to prevent an associated person from criminally facilitating the evasion of a tax. An associated person includes an employee, agent or other person who performs services for or on behalf of the business, and can be an individual or an incorporated body.

The new law will apply to:

  • all taxes
  • all businesses regardless of size or industry sector
  • tax evaded in the UK or in a foreign country.

There are three stages that apply to both the domestic and foreign tax evasion facilitation offences.

Stage one: the criminal tax evasion by a taxpayer (either an individual or a legal entity) under existing law.

Stage two: the criminal facilitation of the tax evasion by an associated person of the business who is acting in that capacity.

Stage three: the business failed to prevent its representative from committing the criminal facilitation act.

There will be a defence against prosecution if a business can show either:

  • that it had put reasonable prevention procedures in place, or
  • that it was not reasonable in the circumstances to have such procedures in place.

HMRC draft guidance

HMRC have published draft guidance which provides further information on the offence and includes details of the types of processes and procedures that can be put in place to prevent associated persons from criminally facilitating tax evasion.

The guidance includes 6 guiding principles on which reasonable prevention procedures should be based. These are:

  • Risk assessment
  • Proportionality of risk-based prevention procedures
  • Top level commitment
  • Due diligence
  • Communication (including training)
  • Monitoring and review

Further explanation of each principle, including the level and type of procedures that are likely to be acceptable, are included in the guidance.

It is also worth noting that HMRC are working with industry bodies to support them in drafting their own sector specific guidance for the offence.

What businesses need to be doing now

In view of the short timeframe businesses need to act quickly to ensure they are compliant and have reasonable prevention procedures in place before the expected implementation date of September 2017.

Businesses should familiarise themselves with the legislation and draft guidance. They need to establish which areas of the business are at risk and determine who is responsible for ensuring appropriate prevention procedures are in place. An assessment should be carried out to identify where gaps exist. New controls and processes will need to be developed and introduced where necessary to meet the statutory requirements – referring to any industry specific guidance (when made available) should assist businesses with this. As with all procedures, it is recommended that regular reviews are conducted to ensure the prevention procedures remain up to date and compliant.

Please get in touch if you have any concerns about the new legislation or require assistance in developing your prevention procedures.