New Offence – Failure to prevent tax evasion

Have you heard about the new offence, failing to prevent the facilitation of tax evasion (there are actually two potential offences, see below), do you know it impacts you?  This new law is not just for professional/financial service business who “peddle” tax planning schemes, which is why a recent survey showed that 76% of major decision makers in business were unware of the new law.  If it has tax in the title, surely it only relates to accountants? – Not the case!

This new criminal offence will come into effect on 30th September 2017 and businesses need to ensure that they have considered its impact before the end of the month, so as to implement the measures they need to protect themselves.

The new offence makes "relevant bodies", namely corporates and partnerships (not individuals) strictly criminally liable for failing to prevent criminal facilitation of tax evasion by any of their "associated persons", namely any person performing services for or on behalf of the business. Associated persons include, for example, employees, agents, sub-contractors etc.

There are two offences:

• failure to prevent the facilitation of UK tax evasion (the “UK Offence”); and

• failure to prevent the facilitation of non-UK tax evasion (the “Foreign Offence”).

Both offences are “strict liability”. That is to say, the senior management of the relevant body need not have participated in, known about or even suspected either the facilitation or the evasion of tax for the relevant body to be held criminally liable. All that is needed to trigger liability is for an associated person to criminally facilitate tax evasion by a tax payer.

The only defence to the offences is that the relevant body had in place "reasonable" procedures designed to prevent its associated persons from criminally facilitating tax evasion.

If successfully prosecuted, a relevant body could face an unlimited fine as well as significant commercial and reputational damage.

All businesses will need to implement measures to protect themselves against the risks this legislation brings.  The only statutory defence available is that the relevant body had in place reasonable prevention measures or that there were reasonable grounds for not having such procedures in place. Guidance issued by HM Revenue & Customs  states that the measures to be implemented should be guided by six core principles:

• Risk assessment – Conduct a full risk assessment of the business to identify where, if any, the risks of committing the offences lie. It may be that the business concludes that the risks are negligible or none, but the assessment needs to be conducted and recorded in writing.
• Proportionality of risk-based prevention procedures – Devise and implement prevention policies and procedures proportionate to the identified risks and the size of business. For example, put in place or update existing compliance and ethics policies, the inclusion of terms in employment contracts, procedures for reporting and procedures for monitoring and enforcing compliance.
• Top level commitment – The business owners, or board are to foster a culture within the organisation of ‘zero-tolerance’ towards the criminal facilitation of tax evasion and be involved in the assessment of risk as well as in the creation and implementation of preventative procedures.
• Due diligence – Apply appropriate due diligence procedures in respect of any person who will be working/performing services on behalf of the business, which are proportionate to any identified risks.
• Communication (including training) – Prevention policies and procedures are communicated and understood throughout the organisation and provide training for staff and other associated persons.
• Monitoring and review – Monitor and review prevention policies and procedures on a regular (at least annual) basis and make adjustments and improvements in response to any changes.

All businesses should take action to ensure that they are aware of, and have control over, how their employees, agents and service providers are operating to reduce their risk of exposure to the new offences.  HMRC guidance comprises 48 pages and should be reviewed.