The Criminal Finances Act introduces the new crime of “Failing to Prevent the facilitation of Tax Evasion”. Businesses need to be aware what this means for them and their senior management.
The new law
The Criminal Finances Act 2017 received Royal Assent on 27 April 2017. Part 3 of the Act which relates to the new offence came into force on 30 September 2017. The new law applies to all companies and partnerships but not sole traders.
- There are three stages to the new offence
Firstly, there must be a criminal offence committed by a customer of your business. If there is no offence by your customer then the business’ senior management cannot be penalised. Whether a conviction against the customer is secured or not is irrelevant as the taxpayer may make a full disclosure or HMRC may decide not to prosecute. The offence was still committed even if the individual is not prosecuted.
- As a second stage the tax evasion must have been facilitated by someone representing the business. This could be an employee, but also an agent or consultant who represents your firm.
- The senior management of the business failed to put in place reasonable prevention procedures.
The crime is being treated as what’s known as a “strict liability” offence. This means that if the first two stages have occurred as outlined above, then the corporate crime of failing to prevent the facilitation of Tax Evasion will automatically assume to have been committed. It is up to the senior management of the business to put a defence across to disprove the allegation. The defence prescribed in law is to have “reasonable prevention procedures” in place.
In order to determine what are “reasonable” procedures it is first necessary to undertake a risk assessment. Based on the level of risk discovered the appropriate procedures can then be planned. The implementation of the plan can be put in place after 30 September 2017 but HMRC are expecting the risk assessment and the plan to be drawn up by 30 September 2017.
The risk assessment
The risk assessment itself will essentially be a review of the business’ internal procedures, customer lists and suppliers. HMRC expect Senior Management to have oversight of the risk assessment procedure. HMRC are looking for the risk assessment to identify areas of concern such as the following:
Country risks – are customers or suppliers based in jurisdictions where there are perceived levels of secrecy, have international sanctions imposed against them or are commonly used as tax havens. The OECD produce tax transparency ratings for countries which could help determine which countries are more at risk.
Sectorial risk – traditionally certain sectors are more at risk of aiding tax evasion, for example financial and legal sectors.
Business risks – does the transaction involve a high value project covering many different jurisdictions.
Customer risks – are they a cash intensive business, are they non-UK resident, is the ownership structure unnecessarily complex.
Internal risks – is there an inadequacy in staff training or a lack of controls over the businesses payments and bank accounts.
These are just some examples and should not be considered an exhaustive list.