A Taxing Problem for Business
The Criminal Finances Act 2017 came into force on 30th September 2017, bringing with it important changes that all businesses should be prepared for.
While tax evasion is already an offence, currently there is no obligation on a company to take steps to stop another person engaging in such illegal activity. With a few exceptions, if a company does not personally participate, they may stand idly by while another person or entity offends. The Criminal Finances Act 2017 brings this situation to an end so far as certain aspects of taxation are concerned.
How can a business be liable?
Broadly, the Act will renders 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.).
A business may now be criminally liable if the following 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); and
- 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.
'Associated Person' means: '...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'.
These provisions apply in relation to both UK and foreign offences.
What are the penalties?
The maxiumum penalty is an unlimited fine. While there are currently no sentencing guidelines, we can reasonably anticipate these to be subtantial, in some cases measured in the tens of thousands of pounds or more. Reputational and other consequences may also follow an investigation or prosecurion (such as loss of future contracts).
What are the available defences?
It is a defence to prove:
(a) That there were in place such prevention procedures as it was reasonable in all the circumstances to expect the business to have in place, or
(b) It was not reasonable in all the circumstances to expect the business to have any prevention procedures in place.
It is essential therefore to ensure to have reasonable safeguards are in place to prevent tax evasion.
What Can I Do To Protect My Company?
Business should commit to policies and processes designed to prevent employees and others committing tax facilitation offences. There is no 'one size fits all' policy toolkit. To devise such procedures, businesses are advised 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 diligence;
- Communicate the policy/procedures and train all employees/agents who carry out work on behalf of the company;
- Monitor and review the policies and procedures to ensure continued effectiveness.
While HMRC doesn't expect companes 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 timeframe and implementation plan on entry into force’.'
How we can help
It is best to act in advance to put reasonable prevention procedures in place..
We have a team of highly skilled barristers ready and to assist with all aspects of business and regulatory crime compliance policy and training. Our barristers specialise in defending individual and corporate clients accused of fraud, financial crime, international bribery and corruption, and other corporate crime. We have developed unrivalled expertise in fraud and associated work. Our fraud group comprises some of the most highly regarded Queen’s Counsel and junior counsel offering representation at all levels.