Corporate Criminal Offences: is your business at risk?

Corporate Criminal Offence Rules

The Corporate Criminal Offence of Failure to Prevent the Facilitation of Tax Evasion was included in the Criminal Finances Act 2017 and has applied since 30 September 2017.

Although this did not change existing laws on tax evasion, it made it easier to prosecute companies or partnerships, rather than an individual.

Effectively, under the legislation, a business could be guilty of a criminal offence if an employee or associated person facilitates another person’s tax evasion. This applies even if the senior management of the business was not involved in, or aware of, what was going on.

For the offence to be committed by a business, the following must apply:

1. Criminal tax evasion must have taken place by a person either under UK law or foreign law;
2. The evasion must have been enabled by an employee or “associated person” of the business, i.e. an agent or someone performing services on behalf of the business;
3. The business must have failed to prevent that person from enabling the crime. The initial criminal tax evasion could be in respect of any taxes (income tax, VAT, etc.) but must have been intentional. It is not enough that the taxpayer was careless. Similarly, the “associated person” of the business must also have criminal intent and so be an accomplice. Put simply, they would be aware that they are helping another to commit fraud. This offence applies to all businesses: professional and commercial, large and small. For example, an employee of a building company could knowingly invoice work for an extension on an individual’s private home to that individual’s business to “save on the VAT”. The motivation for this could be to achieve sales targets. A business committing this offence could face an unlimited fine but if the business is able to demonstrate that it has “reasonable prevention procedures” in place, then this would be seen as a defence.

Prevention procedures

HMRC has set out 6 guiding principles that businesses should take into account in establishing reasonable prevention procedures:

1. Risk assessment
2. Proportionality
3. Top-level commitment
4. Due diligence
5. Communication and training
6. Monitoring & review

All businesses will at the very least have to undertake a risk assessment to identify the possibilities of facilitation of tax evasion within the business and any gaps that exist in the control environment in place. HMRC note that businesses need to “sit at the desk” of their employees and other associated persons to understand motive, opportunity and means of facilitating tax evasion.

Needless to say, to form a strong defence, any risk assessment undertaken and any policy decisions that follow must be documented to provide the required proof.

Click on the link to read for further guidance on Tackling Tax Evasion  

If you have any queries about the rules or require any assistance with this matter then please contact a member of our tax team on 01903 234094.