New corporate offence of failure to prevent criminal tax evasion in force from 30 September19/10/17
The Criminal Finances Act 2017, which came into force on 30 September, introduces a new corporate offence making organisations criminally liable where they fail to prevent tax evasion by a member of staff or an external agent. An offence is committed even where the business is not involved in or is unaware of the tax evasion.
For a company or partnership to be liable, there must have been (1) criminal evasion of UK tax by a taxpayer under existing law, (2) facilitation of that person’s offence by a representative of the organisation and (3) a failure by the organisation to prevent its representative from committing the criminal act. A representative of the organisation can be an employee, an agent of the organisation who is acting as such, or any other person who performs services for or on behalf of the organisation. The definition is potentially wide enough to include contractors, subcontractors and temporary workers, although whether it does so in any particular case will be determined by reference to all the relevant circumstances. Where the representative is acting in a personal capacity, there will be no corporate offence.
Prosecution under the Act could lead to a conviction and/or unlimited fines. Organisations also face the possibility of other sanctions such as confiscation or crime prevention orders, and may lose their licence and be prohibited from bidding for public contracts.
Organisations will have a defence under the Act if they can show that they have implemented “such prevention procedures as it was reasonable in all the circumstances to expect”, or that in the circumstances it would have been unreasonable to have expected the organisation to have procedures in place.
Reasonable prevention procedures
HMRC has issued guidance to help organisations understand what is meant by “reasonable prevention procedures”. The guidance mirrors that issued on the “adequate procedures” defence found in the Bribery Act 2010. It encourages organisations to focus on six key principles, namely:
- Risk assessment – identify the specific risks
- Proportionality – the procedures implemented must be proportionate to the specific risks identified in the risk assessment
- Due diligence – of staff, third parties and clients, proportionate to the risk
- Top level commitment – senior managers should be responsible for the development and implementation of the procedures
- Communication – to ensure the policies are embedded and understood, including training
- Monitoring and review – procedures and risk assessment should be reviewed on an ongoing basis.
What to take away
Organisations should take immediate steps to review current practices and procedures and undertake a risk assessment to identify and minimise any risks, and put into place appropriate monitoring and training of staff and relevant third parties. We recommend that organisations put into place a policy and ensure that employment contracts and consultancy agreements contain clauses requiring staff and consultants not to engage in tax evasion and to report any concerns to the organisation promptly. Whistleblowing procedures should be reviewed and updated as appropriate, and policies and risk assessments will need to be regularly reviewed to ensure they are appropriate and take into account any specific risks.
For further information on how this issue might affect your organisation, please contact Victoria Watson.