Posted by Gary Mackley-Smith on July 13, 2017
From 30 September 2017, the Criminal Finances Act 2017 will make companies and partnerships criminally liable if they fail to prevent tax evasion by either a member of their staff or an external agent, even where the business was not involved in the act or was unaware of it.
A prosecution could lead to both a conviction and unlimited penalties.
Tax evasion is already an offence, but up to now it has not been possible to ascribe criminal liability to the firm where it occurred.
The Act became law in April 2017, and regulations have now confirmed that the regime takes effect from the autumn. The new rules cover both UK and overseas taxes (where there is a UK element).
For a firm to be liable under the Act, there must have been:
The new rules target deliberate and dishonest behaviour. They do not create any new offences at the individual level - if activity would be considered to be tax evasion under existing law, then it will continue to be so. Likewise, if the activity would not currently be considered tax evasion, then the new law does not make it so.
A business may avoid criminal liability where it can show that it had implemented reasonable prevention procedures, or where it can show that in the circumstances it would have been unreasonable or unrealistic to have expected it to have had procedures in place.
Firms will have to ensure that they have reviewed their current practices and procedures to minimise any risks, and to put in place appropriate monitoring and training of staff at all levels. The Act effectively makes owners and managers responsible for preventing their staff and external agents and consultants from committing tax evasion. And the larger and more complex the business, the greater the risk that an activity may occur that could be caught.
HMRC’s 45 pages of draft guidance suggests firms undertake risk assessments of their products, services, client data and internal systems that could be used to facilitate tax evasion.
Areas that firms may wish to review could include, for example, where staff have not taken holidays, or are evasive over their client relationships, or where there is insufficient oversight of processes and information.
After reviewing any risks, a firm may wish to design or upgrade its procedures to cope with any concerns. This may include:
A further measure in the Act allows for Unexplained Wealth Orders to be served on individuals suspected of a serious crime to explain the sources of their wealth; any proceeds of crime can be seized by the authorities.
The Act also covers a raft of other provisions, including further powers to investigate suspected money laundering or terrorist financing, and new orders to require someone to disclose information they may have on money laundering.
HMRC has issued draft guidance and factsheets on how the new rules will work in practice:
If you would like to discuss these issues, please contact a member of our business tax team, or your usual Bishop Fleming adviser.