Do you know your obligations under the Criminal Finances Act 2017?

Connor Tracey, Business Consultant at Aspire Business Partnership LLP, blogs on Part 3, section 45 ‘failure to prevent facilitation of UK tax evasion offences’ of the Criminal Finances Act 2017.

Background of the Act

The Criminal Finances Act 2017 (‘the Act’), not to be confused with the standard annual Finance Act, received Royal assent on 27^th April 2017. The Act is Government’s attempt to improve their powers and abilities to tackle money laundering, corruption, tax evasion and terrorist financing.

Although tax evasion and its facilitation is a criminal offence, it has always been difficult to attribute criminal liability to the corporation. Part 3, section 45 of the Act contains a new corporate offence for failing to prevent tax evasion. This will be enforced from September 2017. Therefore, is it necessary for companies to have reasonable procedures in place to have a valid defence if a person acting on their behalf commits an offence aiding or facilitating the evasion of tax.

There are three stages to the offence:

Stage one: The criminal evasion by a tax payer (either individual or a legal entity) under existing law.

Stage two: The criminal facilitation of the tax evasion by an ‘associated person’ of the relevant body who is acting in that capacity.

Stage three: The relevant body failed to prevent its representative from committing the criminal facilitation act.

In short, this legislation makes a corporation liable for the facilitation of criminal tax evasion of a tax payer by any person or entity associated with the corporation. A person/entity will be considered to be associated with company if they are:

• An employee;
• An agent of the corporation; or
• Any other person who performs services for or on behalf of the corporation who is acting in the capacity of a person performing such services.

It is important to note that the corporate offence will still apply even where there has been no conviction of the individual taxpayer.

What can companies do to ensure they are compliant?

HMRC has provided guidance summarised as six principles;

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

HMRC’s guidance has been caveated as “not prescriptive or a one-size-fits-all document” and is intended to be flexible and adapted to individual company circumstances.

Firstly, a company should carry out a risk assessment in the mind of a criminal to see where it is possible for individuals to facilitate or commit tax evasion. The risk assessment findings should show which parts of the business are high, medium and low risk. Using the results of the risk assessment the company should create procedures and processes to minimise risk. It is extremely important that managers and top-level staff take a zero-tolerance approach to tax evasion, this will ensure that the matter is taken seriously throughout the business. The company’s commitment against tax evasion should be communicated to everyone within the business and to those who represent them. Personnel in high risk areas may need specific training. As a company changes its services or its main source of income, so will the risks it faces and so, it is important to review the procedures put in place at least one every year to see if the risk mitigating procedures are still appropriate.  

The legislation includes scope for the corporation to defend the action if is it able to demonstrate that at the time the offence was committed;

• the corporation had anti-tax avoidance prevention procedures and processes in place which were considered reasonable in the circumstances; or
• It was not reasonable in all the circumstances for the corporation to have any prevention procedures in place.

Prevention Procedures is defined in the legislation as “procedures designed to prevent persons acting in the capacity of a person associated with the corporation from committing UK tax evasion facilitation offences”.

Penalties  

To support Government’s commitment to tackle corporate offences for failing to prevent tax evasion, they have introduced heavy penalties as punishments for non-compliance;

• If found a company is found guilty of the offence to failure to prevent facilitation of tax evasion, the corporation will face a criminal conviction with an unlimited financial penalty.
• Those working in a regulated sector risk losing their licence or having restrictions placed upon them.
• Corporations may be prohibited from bidding for public contracts.

Aspire comment

Plainly it is likely that any attempt by an associate to facilitate tax evasion will be made in a covert manner and so, the company will be unlikely to be aware of the issue. Accordingly, we would envisage that the most effective manner of dealing with the corporate responsibility under the Criminal Finances Act is to ensure a robust process is in place which would constitute a valid defence in accordance with the legislation, in event that this needed to be relied upon.

Tax evasion must involve a fraudulent activity which has an aim of diverting funds from the public revenue therefore we believe cases of non-compliance will fall short of fraudulent evasion.

If you require any assistance assessing the level of risk or creating appropriate procedures please contact Aspire.

Email: enquire@aspirepartnership.co.uk

Phone: 0121 445 6178