Corporate Criminal Offence: Failure to prevent tax evasion, is your business ready?

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What is it and when does it apply?

New legislation, applicable to corporations (and partnerships), introduces two new offences to enable the easier prosecution of businesses which fail to prevent the facilitation of UK or overseas tax evasion. The rules come into force from 30 September 2017.

The offences

  1. The first offence applies to all businesses, wherever located, in respect of the facilitation of UK tax evasion; and
  2. The second offence applies to businesses with a UK connection in respect of the facilitation of non-UK tax evasion.

What are its implications?

The legislation will make a business vicariously liable for the criminal acts of its employees and other persons “associated” with it, even where the senior management of the business was not involved or aware of what was going on.

This could mean criminal conviction for the corporation, risk of reputational damage, unlimited financial penalties, confiscation orders and serious crime prevention orders.

A reasonable defence?

A business will have a defence if it can prove that it had reasonable procedures in place to prevent the facilitation of tax evasion taking place.

Six guiding principles

HMRC guidance outlines six guiding principles of what constitutes “reasonable procedures”:

  1. Risk assessment
  2. Proportionality of risk-based prevention procedures
  3. Top level commitment
  4. Due diligence
  5. Communication (including training)
  6. Risk monitoring and review

HMRC have made it clear that relying on existing anti-money laundering processes does not constitute reasonable procedures and that tax evasion facilitation must be considered separately.

What do I need to do?

Businesses need to undertake a risk assessment to identify where there are risks of the business being involved in or exposed to the facilitation of tax evasion directly or indirectly. Employees, contractors and customer and supplier chains need to be considered. Documentation is key to support any changes required and to evidence reasonable procedures are in place to prevent employees, service providers, agents, suppliers and customers from engaging in or facilitating tax evasion.

How can we help?

If you have any concerns about the impact of this new legislation on your business or would like assistance with reviewing the procedures you have in place, please contact our tax specialists using the contact form or by phone on 01223 728222

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