What is the CCO?
The CCO was introduced in the Criminal Finances Act 2017 and created two new offences for the failure to prevent the facilitation of tax evasion. The CCO applies to companies and partnerships and the two new offences created were –
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- A failure to prevent facilitation of UK tax evasion, and;
- A failure to prevent facilitation of non-UK tax evasion.
These strict liability offences came into force from 30 September 2017 but there is a statutory defence available where the entity can evidence that it has adequate processes and procedures in place to prevent associated persons from criminally facilitating tax evasion. The CCO did not radically alter what is considered ‘criminal’ but focused on who would be held to account.
The relevant legislation is drafted deliberately broadly but any entity where the rules apply has responsibility to ensure that anyone acting on its behalf, which includes employees, off-payroll workers, contractors, intermediaries, agents etc., does not facilitate tax evasion. The CCO does not make entities responsible for preventing their customers from committing tax evasion.
Penalties and sanctions
The penalties in CCO cases are severe and include:
- Unlimited financial penalties
- Ancillary orders such as confiscation orders or serious crime prevention orders
There are potentially wider implications too, for example, if the entity needs to make a disclosure to professional bodies and regulators. It could also prevent the entity being awarded public contracts.
Entities can limit the damage of failures by self-reporting breaches in a timely manner.
What is the statutory defence for CCO?
Both the UK and non-UK offences require three stages for an offence to have been committed. Stage one is a taxpayer has been engaged in tax evasion. Stage two involves the facilitation of the tax evasion by an associated person of the entity. However, stage three requires a failure by the entity to prevent the associated person committing the criminal act.
Therefore, where an entity has put in place reasonable prevention procedures, there is a statutory defence that the entity can rely on. HMRC has provided guidance to help entities better understand how to make sure the procedures they put in place are sufficient and are based around six principles:
- Risk assessment
The entity assesses the extent of its exposure to risk and documents this. It might be influenced by the sector it operates in.
- Proportionality of risk-based prevention procedures
The procedures in place are proportionate to the risks identified, and that will depend on the nature, scale and complexity of the entity’s activities. The CCO does not require excessively burdensome procedures to be introduced but it does require more than mere lip-service to preventing the criminal facilitation of tax evasion.
- Top level commitment
An entity needs to be able to demonstrate that the most senior individuals in the organisation are committed to preventing the criminal facilitation of tax evasion.
- Due diligence
The organisation applies due diligence procedures in respect of persons who perform or will perform services on their behalf.
- Communication (including training)
Policies and procedures must be communicated, embedded and understood throughout the organisation through internal and external communication, including training.
- Monitoring and review
The polices and procedures remain under constant review to ensure they remain fit for purpose.
What next?
HMRC guidance is very helpful to entities who want to understand more about how to reduce the risk of being subject to the CCO. It might be for this reason that as at October 2024 there have been no successful criminal prosecutions under the offence. The number of live HMRC investigations since the legislation was introduced has remained in the low double-digits, but as the onus is on entities to ensure their policies and procedures are up-to-date the CCO is not something any organisation can take lightly.
If you would like to learn more about the Corporate Criminal Offence please contact Menzies’ Tax Disputes and Disclosures team on our free confidential helpline – 07813 003 194.