The main provisions of the Criminal Finances Act 2017 come into force on the 30th September 2017, and there are a few important updates that businesses need to know.
While tax evasion is already an offence, currently there are no obligations for companies to take steps to stop another person engaging in such illegal activity. With a few exceptions, if you do not personally participate, you can legally stand by while witnessing another person committing the offence. The introduction of the Act brings this situation to an end in terms of certain aspects of taxation.
The Act will render a business (which includes partnerships) liable to prosecution if a ‘tax offence’ is committed by an employee or other person performing services for the company (agents etc.).
To be found guilty, the following must apply:
- There has been a criminal evasion of tax (whether that resulted in prosecution or not).
- An ‘Associated Person’ facilitated the commission of that offence (i.e. a person linked to your business).
- A failure by the firm to prevent that facilitation taking place; This is a strict liability element; the business need not know that anything unlawful was taking place.
An ‘Associated Person’ is defined as: ‘…an employee, a person acting in the capacity of an agent, or any other person who performs services for or on behalf of your company who is acting in the capacity of a person performing such services…’.
The provisions apply in relation to both UK and foreign offences.
Is There A Defence?
Yes, if you can prove:
(a) That you had in place such prevention procedures as it was reasonable in all the circumstances to expect you to have in place.
(b) It was unreasonable in all the circumstances to expect you to have prevention procedures in place.
As per the above, in order to prevent tax evasion, it is clear that your business needs to have reasonable safeguards in place.
What Is The Penalty?
Your company could face an unlimited fine. While there are currently no sentencing guidelines, we can reasonably anticipate these to be very large. In some cases, measuring into the tens of thousands of pounds and above. You would also need to try and measure the reputational damage to the business, and other important damage factors (such as loss of future contracts) that might follow.
That Doesn’t Sound Good! What Can I Do To Protect My Company?
Your business will need to commit to policies and processes designed to prevent your employees and others committing tax facilitation offences. There is no ‘one size fits all’ policy toolkit that you can purchase off the shelf. To ensure your procedures are tailored to your business, you will need to:
- Carry out a risk assessment.
- Decide on what is a proportionate response to that risk.
- Ensure top-level commitment within the organisation to implementing any policy/procedure.
- Maintain due due diligence.
- Communicate the policy/procedures and train all employees/agents who carry out work on your behalf.
- Monitor and review the policies and procedures to ensure continued effectiveness.
Ok, We Will Certainly Put This On Our ‘To Do’ List!
While HMRC doesn’t expect you to have everything in place on 30th September 2017, it does have some ‘day one’ requirements, with HMRC stating in its guidance that:
‘[We expect] there to be rapid implementation, focusing on the major risks and priorities, with a clear time-frame and implementation plan on entry into force’.’
We Better Get To It Then….Help!
Laws relating to business can be challenging at the best of times, but when they could also land your company in court and facing crippling fines, it is best to act in advance and do all you reasonably can to put protections in place.
While we have summarised the provisions of the Criminal Finances Act 2017 above for your convenience, there are further complexities that you should take time to research to fully understand in detail your obligations.