HM Revenue & Customs (HMRC) has pledged to clamp down on criminal tax evaders and, as of 30 September 2017, corporate bodies which fail to prevent the facilitation of criminal tax evasion.
Given recent criticisms that HMRC has thus far targeted mostly the smaller, surer, “easy wins”, we expect they will launch this new corporate offence with a real determination to demonstrate its potency.
The failure to prevent the facilitation of tax evasion is an extremely wide offence that is codified in section 45 of the Criminal Finances Act 2017. It has been drafted to capture even the most tenuous cases of criminal tax evasion, targeting any corporate body or partnership which has been incorporated, or carries on business, in the UK (“relevant body”).
That said, the offence is most likely to affect regulated businesses and especially those in financial services, legal and accounting sectors.
If relevant bodies have not already considered the impact of this new offence, it is crucial that they do so now. Briefly, this is as follows:
Two new corporate offences have been introduced:
- The failure to prevent the facilitation of UK criminal tax evasion; and
- The failure to prevent the facilitation of foreign criminal tax evasion.
Elements of the new offences
For both offences, the following stages apply:
- Fraudulent evasion of UK tax by a taxpayer;
- Criminal facilitation of the evasion of that tax by an associated person acting on behalf of the relevant body; and
- A failure by the relevant body to have prevented the associated person from criminally facilitating the fraudulent evasion of tax.
If foreign tax is fraudulently evaded, there is an additional requirement of “dual criminality”. The evasion must be a criminal offence in that country, and also considered to be fraudulent evasion by a UK court.
Although a Deferred Prosecution Agreement may be available for the offence, if prosecuted, a relevant body could face the following:
- Unlimited fines;
- Possible sanctions such as serious crime prevention orders or barring from participation in public tenders; and
- Severe reputational damage which can be difficult to overcome.
The offences are both strict liability offences. That means that if stages one and two are satisfied above, the relevant body will have committed an offence.
The only defence available to the relevant body is that it had “reasonable prevention procedures” in place, discussed further below.
Reasonable Prevention Procedures
These procedures should be part of the blueprint of every relevant body likely to be affected by the offence. The government has published six guiding principles to follow in the implementation of these procedures:
- Risk assessment: Identification of the nature and extent of the relevant body’s exposure to risk. Practically, this will involve engaging with all employees and agents to establish whether there is opportunity to facilitate criminal tax evasion in their day-today roles. Once the level of risk is identified, the body will be able to prioritise areas that require immediate attention. The assessment and its results should be carefully documented.
- Proportionality of risk-based prevention procedures: After establishing the level of risk, the relevant body must consider how “heavyweight” their preventative procedures must be. For example, should there be a specific tax policy for employees and agents to follow, or should a tax policy be integrated to existing internal controls? Once again, any procedures that are to be implemented should be clearly documented.
- Top level commitment: A culture of responsibility from the board level down should be developed. This will alter according to the size of the relevant body, but senior managers will be tasked with the assessment of risk and ongoing communication of the preventative procedures to employees and agents.
- Due diligence: A review of existing due diligence policies, and contracts with suppliers going forward, is the starting point. Due diligence measures must be proportionate however, so if a particular situation is assessed to be low-risk, this would justify there being no due diligence procedure in place.
- Communication: Proportionate prevention procedures should become engrained into the relevant body’s day-to-day business. A relevant body should seek to effectively communicate a zero-tolerance policy for the facilitation of criminal tax evasion through measures led by senior managers which filter down through all levels. It is important that all those providing services on behalf of the relevant body are fully aware of the procedures and understand how to carry them out.
- Training: Based on the level of risk that is identified, employees and agents should be provided with proportionate prevention training. This can range from an internal session that forms part of more general financial crime prevention training, to external tax-evasion specific training. Importantly, training must be practical, relevant to the services provided, and effective.
Taking the above principles into consideration, it is essential that a risk assessment is carried out thoroughly before implementing procedures that can be onerous and costly.
For SMEs in particular, it may be that an assessment reveals a very low risk of facilitating tax evasion, and overhauling existing financial crime prevention procedures may not even be necessary.
As with all new offences, the published guidance is largely theoretical at this stage. For further information or guidance on this area, please call Mackrell Turner Garrett on 00 44 (0) 20 7240 0521 or visit www.mackrell.com
By Maya Paunrana
Solicitor at Mackrell Turner Garrett
About Maya Paunrana
Maya Paunrana joined Mackrell Turner Garrett’s London office in 2012 where she completed her training and qualified as a solicitor in the Criminal and Regulatory Group.
During her time as a trainee at Mackrell Turner Garrett, Maya gained significant experience in the Criminal Department, working on matters involving complex and serious fraud, money laundering, tax evasion and Financial Services and Markets Act (FSMA) offences . She developed a particular interest in boiler room fraud after assisting with the highest profile and largest ever boiler room case to be brought by the Serious Fraud Office in the UK.
She read Law at King’s College, London, before completing the Legal Practice Course at BPP Holborn. Maya is a member of the Young Fraud Lawyers Association, the London Fraud Forum, the Mackrell White Collar Practice Group, the Society of Asian Lawyers and the Law Society.
About Mackrell Turner Garrett
Mackrell Turner Garrett is a full service law firm with offices in Central London and Surrey. The firm was founded by John Mackrell in the City of London in 1845 and maintains its strong commercial background.
Today, with partners employing over 60 staff, we provide an extensive range of legal advice and services for individuals, partnerships and companies, both in the UK and through its International network, Mackrell International – www.mackrell.net
To find out more about Mackrell Turner Garrett, please visit www.mackrell.com