The Criminal Finances Act has introduced a new corporate criminal offence of ‘failure to prevent the facilitation of tax evasion’. The offence is expected to be enforceable from September 2017.
Although this new offence doesn’t change the existing laws on tax evasion or the facilitation of tax evasion, it does make it easier to prosecute companies or partnerships (relevant bodies).
In the past, prosecutors had to show that the senior members of the body, typically the board of directors, were involved in and aware of the illegal activity. This was often hard to prove when the board of directors aren’t actively managing the staff on a daily basis and may not be aware of what really happens on the ground.
This new offence changes tack and asks whether the relevant body had put in ‘reasonable preventative procedures’ to stop their employees aiding another taxpayer in an act of tax evasion. If the answer to this is no then the body may be committing an offence.
HMRC outline six guiding principles to define reasonable preventative procedures:
1. Risk assessment
Organisations must assess the nature and extent of their exposure to risk. HMRC say that relevant bodies need to ‘sit at the desk’ of their employees and agents and ask whether they have a motive and opportunity to facilitate tax evasion.
2. Proportionality of risk-based prevention procedures
Put in place practical procedures that reflect the nature and complexity of the business.
3. Top level commitment
Commitment to the principles should be demonstrated from the top level downwards creating a culture where tax evasion is never acceptable.
4. Due diligence
Carry out due diligence procedures in respect of anyone who works for or performs services on behalf of the organisation.
5. Communication (including training)
Make sure that the policies and procedures are relayed throughout the organisation and staff are trained on the social and economic effects of failing to prevent tax evasion.
6. Monitoring and review
Periodically review the procedures to make sure they are effective and make improvements where necessary.
The first step for most relevant bodies will be to identify risk areas such as:
• Are there staff who refuse to allow anybody else to review their work
• Is someone secretive and defensive about a client relationship
• For any higher risk work are there review and ‘four eyes’ checking procedures
The second stage is to put measures in place that demonstrate commitment to the legislation.
If an enquiry is ever held, the burden of proof lies with the body to prove, that on any date their procedures were reasonable. So, at each of the stages above, keep contemporaneous records of everything you do and why. If convicted, a business will face an unlimited fine in respect of the acts of its employees.
If you have any queries about the new rules or would like to know more about how this might affect you please speak to our specialist tax team on 01603 624181 or email email@example.com