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Corporate criminal offence: Failure to prevent tax evasion

There is a new offence of corporate failure to prevent criminal facilitation of tax evasion coming into force from 30 September 2017. It applies to all companies, partnerships and LLPs. Individuals can be prosecuted under existing laws. It means management can be held liable for the actions of employees or agents who assist third parties to commit fraud or tax evasion.

Tax evasion includes the offences of cheating the public revenue (which is a very widely drawn definition); or being knowingly concerned in, or taking steps with a view to, the fraudulent evasion of a tax.

If convicted, a business will face an unlimited fine in respect of the acts of its employees. In its defence, the business may claim it put in place reasonable prevention methods to prevent facilitation by associated persons; or, it is unreasonable to expect to have such procedures in place.

HMRC's guidance can be found at the link below, and includes examples of what would constitute reasonable procedures to take to prevent the facilitation of tax evasion. Smaller businesses will need to undertake a risk assessment of the products and services they offer, as well as their internal systems and any client and supplier data that might be used to facilitate evasion. The measures taken must be proportionate to risk.

Guidance suggests that the steps expected of smaller businesses in low risk sectors could include:

  • A commitment to preventing the involvement of those acting on the business’s behalf in the

criminal facilitation of tax evasion. This could be demonstrated by issuing a prominent message from the board against all forms of tax evasion

  • Terms in contracts with employees and contractors requiring them not to engage in facilitating tax evasion and to report concerns immediately
  • Regular training for staff on financial crime detection and prevention
  • Clear reporting procedures for whistleblowing of suspected facilitation
  • Ensuring that pay and bonus policies encourage reporting and discourage pursuing profit to

the point of condoning tax evasion.

We recommend you take steps to assess how this new legislation may impact on your business.

Link: https://www.gov.uk/government/consultations/tackling-tax-evasion-a-new-corporate-offence-of-failure-to-prevent-the-criminal-facilitation-of-tax-evasion#history

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