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Corporate Offence of Failure to Prevent Tax Evasion

31st July 2017

The Criminal Finances Act 2017 introduced two new strict liability corporate criminal offences, aimed at preventing businesses “turning a blind eye” to the tax evasion actions of their staff and other associates.  The offences will come into effect from 30 September 2017, tying in with the first disclosures under the Common Reporting Standard, and will apply to both corporates (including charities) and partnerships.

The Offences

  • The first offence will apply to all businesses, wherever located, in respect of UK tax evasion; and
  • A second will apply to all businesses with a UK connection, in respect of the facilitation of non-UK tax evasion.

For the offences to apply:

  • Criminal tax evasion must have taken place; and
  • A person or entity associated with the business must have criminally facilitated the tax evasion, whilst performing services for that business. 

“Associated persons” are employees, agents, contactors and other persons who perform services for on behalf of the business and can include subsidiaries and joint ventures.

Criminal Tax Evasion

The common law offence of cheating the public revenue and statutory offences of fraudulently evading taxes, constitute tax evasion.  Evasion occurs where there is a dishonest intention not to declare/pay a tax liability, not through carelessness or a mistake. 

Penalties

A business found guilty of one or both of the offences face:

  • Unlimited fines;
  • Ancillary confiscation orders;
  • Serious crime prevention orders; and
  • Damage to reputation and commercial position. 

Reasonable Prevention Procedures

A business will have a defence if it can prove that it has reasonable prevention procedures in place.  HMRC’s draft guidance provides six guiding principles which should be taken into account when establishing those procedures:

  • Risk assessment;
  • Proportionality;
  • Top level commitment within the business;
  • Due diligence;
  • Communication and training; and
  • Monitoring and review.

Action Plan

All business, not just bank and advisers, must act now, in preparation for 30 September, to carry out their risk reviews and put “Day One” compliance procedures and policies in place.

For further information, please contact Katharine Arthur, Head of Tax, (+44(0) 20 7969 5610), or any member of haysmacintyre’s tax team.

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