Corporate Criminal Offence: failure to prevent tax evasion

At a glance

As of 30 June 2024, HMRC were investigating 11 businesses using its corporate criminal offence powers with a further 28 live opportunities under review. 101 opportunities have been reviewed and rejected. There have not yet been any convictions.

The offence of corporate failure to prevent the criminal facilitation of tax evasion applies to:

• Companies, partnerships and Limited Liability Partnerships.

It does not apply to individuals, as they can be prosecuted under existing laws.

Circumstances:

• There must be criminal tax evasion under either UK law or foreign law.
• It must be enabled by the business' employee, agent or those performing services to the business.
• The business must have failed to prevent that person from enabling the crime.

If convicted, a business will face an unlimited fine in respect of the acts of its employees.

In its defence, the business may claim that:

• It had in place reasonable prevention methods to prevent facilitation by associated persons.
• It is unreasonable to expect it to have such procedures in place.

How it works:

• A business will be liable for the actions of an individual acting on its behalf, irrespective if it gains any benefit from the employee’s actions.
• The offence will apply to UK businesses failing to prevent those acting on its behalf from criminally facilitating a tax loss in the UK or an overseas jurisdiction which has equivalent laws of tax evasion in place.
• The offence will apply to non-UK companies who fail to prevent those who act on its behalf from criminally facilitating a UK tax loss.
• The offence can only be committed by companies and partnerships, not by natural persons.

HMRC's guidance includes examples of what would constitute reasonable procedures to take to prevent the facilitation of tax evasion. These include:

• Policy.
• Proportionality.
• Risk assessments.
• Due diligence.
• Training for employees.
• A commitment from top-level management to create a culture where tax evasion is never acceptable.

HMRC expect the business to:

• Have written policies and procedures which are:
  • Tailored to the size of the practice and type of work undertaken.
  • Clear that there will be a zero-tolerance approach to tax evasion.
  • Regularly checked to ensure they are being adhered to.
• Consider whether it is encouraging risky practices with its staff reward package.
• Consider what opportunities may arise for staff to facilitate evasion and the extent to which supervision or review is undertaken or required in these circumstances.
• Consider automating new client checks.
• Assess the level of risk considering the type of work being undertaken.
• Ensure signed training records are kept for all staff.
• Ensure records are kept of all instances where evasion was suspected or considered and the reasoning behind the conclusions drawn in these cases. 
• Ensure that staff are reviewed at least annually and ideally more often.

Tax evasion includes offences of:

• Cheating the public revenue.
• Being knowingly concerned in, or in taking steps with a view to, the fraudulent evasion of a tax.

The Chartered Institute of Taxation (CIOT) has provided some specific examples of what might constitute the facilitation of evasion:

• Hiding disallowable expenditure in a category that HMRC is unlikely to question, for example, personal expenditure that has not been declared on the individual's P11D as a Benefit In Kind.
• Intentional manipulation of documents. For example, falsifying dates on dividend documents and board minutes to alter the year in which tax would become due.
• The submission of a tax return which includes a claim that the adviser knows is without any justifiable basis. 
• Knowing that a client wants to set up a structure to try to hide income, gains or assets from a tax authority and continuing to help them to facilitate that structure.

Self-reporting

As part of HMRC’s approach to dealing with this new offence, it has given details of how a company or partnership can ’self-report’ any acts of criminal facilitation that it has discovered.

The procedure involves the submitting of an online report to HMRC via the government gateway by an individual authorised by the company/partnership. Prior to February 2019, this was done by email. The report must contain the following:

• The name of the person making the report.
• The location where tax is being evaded (UK, overseas, or both).
• Full details of the relevant company/partnership on whose behalf the self-report is sent e.g. company number, Unique Tax Reference (UTR) number.
• The individual's role within the organisation.
• A contact partner/director that HMRC can contact to verify your authorisation.
• Contact details should HMRC wish to pursue the matter.
• Details of any regulatory, supervisory or licensing body the company is a member of.
• Details of whether a Suspicious Activity Report (SAR) has been filed, and the reference number if applicable.
• Previous disclosures by the company if you are aware of any.
• Details of the offence as far as you are aware including dates and amounts.
• Details of the prevention procedures in place to prevent persons from criminally facilitating tax evasion.

More detailed information and links to follow to make a report can be found on HMRC's website.

Self-reporting does not guarantee that the company/partnership will not be prosecuted. It could do the following:

• Form part of the company/partnership’s defence. Timely self-reporting will be viewed as an indicator that a relevant body has reasonable procedures in place.
• Be taken into account when deciding if prosecution is appropriate.
• Be reflected in any penalties if convicted.

A submission reference will be issued once the report has been made and the report can be printed. HMRC may share the report with other agencies if they are legally permitted to do so.

Self-reporting offences related to foreign tax should be submitted to the Serious Fraud Office.

Useful guides on this topic

Corporate Criminal Offence: failure to prevent tax evasion toolkit
This is an interactive tool to determine 'At a glance' whether there has been an offence committed under the Criminal Finances Act (2017) in respect of a corporate failure to prevent the criminal facilitation of tax evasion.

Legislation

The new penalty is included in s.44 - s.52 of the Criminal Finances Act 2017, which received Royal Assent on 27 April 2017. On 12 July 2017, the Criminal Finances Act 2017 (Commencement No.1) Regulations 2017 were introduced to Parliament. These bring into force the new offence of failure to prevent the facilitation of tax evasion from 30 September 2017.

The full legislation is in the Criminal Finances Act 2017

Extracts: Part 3 section 44 to 48 Corporate offences of failure to prevent the facilitation of tax evasion

44 Meaning of relevant body and acting in the capacity of an associated person

(1) This section defines expressions used in this Part.

(2) “Relevant body” means a body corporate or partnership (wherever incorporated or formed).

(3) “Partnership” means—

(a) a partnership within the meaning of the Partnership Act 1890, or

(b) a limited partnership registered under the Limited Partnerships Act 1907,

or a firm or entity of a similar character formed under the law of a foreign country.

(4) A person (P) acts in the capacity of a person associated with a relevant body (B) if P is—

(a) an employee of B who is acting in the capacity of an employee,

(b) an agent of B (other than an employee) who is acting in the capacity of an agent, or

(c) any other person who performs services for or on behalf of B who is acting in the capacity of a person performing such services.

(5) For the purposes of subsection (4)(c) the question of whether or not P is a person who provides services for or on behalf of B is to be determined by reference to all the relevant circumstances and not merely by reference to the nature of the relationship between P and B.

45 Failure to prevent the facilitation of UK tax evasion offences

(1) A relevant body (B) is guilty of an offence if a person commits a UK tax evasion facilitation offence when acting in the capacity of a person associated with B.

(2) It is a defence for B to prove that, when the UK tax evasion facilitation offence was committed—

(a) B had in place such prevention procedures as it was reasonable in all the circumstances to expect B to have in place, or

(b) it was not reasonable in all the circumstances to expect B to have any prevention procedures in place.

(3) In subsection (2) “prevention procedures” means procedures designed to prevent persons acting in the capacity of a person associated with B from committing UK tax evasion facilitation offences.

(4) In this Part “UK tax evasion offence” means—

(a) an offence of cheating the public revenue, or

(b) an offence under the law of any part of the United Kingdom consisting of being knowingly concerned in, or in taking steps with a view to, the fraudulent evasion of a tax.

(5) In this Part “UK tax evasion facilitation offence” means an offence under the law of any part of the United Kingdom consisting of—

(a) being knowingly concerned in, or in taking steps with a view to, the fraudulent evasion of a tax by another person,

(b) aiding, abetting, counselling or procuring the commission of a UK tax evasion offence, or

(c) being involved art and part in the commission of an offence consisting of being knowingly concerned in, or in taking steps with a view to, the fraudulent evasion of a tax.

(6) Conduct carried out with a view to the fraudulent evasion of tax by another person is not to be regarded as a UK tax evasion facilitation offence by virtue of subsection (5)(a) unless the other person has committed a UK tax evasion offence facilitated by that conduct.

(7) For the purposes of this section “tax” means a tax imposed under the law of any part of the United Kingdom, including national insurance contributions under—

(a) Part 1 of the Social Security Contributions and Benefits Act 1992, or

(b) Part 1 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992.

(8) A relevant body guilty of an offence under this section is liable—

(a) on conviction on indictment, to a fine;

(b) on summary conviction in England and Wales, to a fine;

(c) on summary conviction in Scotland or Northern Ireland, to a fine not exceeding the statutory maximum.

46 Failure to prevent the facilitation of foreign tax evasion offences

(1) A relevant body (B) is guilty of an offence if at any time—

(a) a person commits a foreign tax evasion facilitation offence when acting in the capacity of a person associated with B, and

(b) any of the conditions in subsection (2) is satisfied.

(2) The conditions are—

(a) that B is a body incorporated, or a partnership formed, under the law of any part of the United Kingdom;

(b) that B carries on business or part of a business in the United Kingdom;

(c) that any conduct constituting part of the foreign tax evasion facilitation offence takes place in the United Kingdom;

and in paragraph (b) “business” includes an undertaking.

(3) It is a defence for B to prove that, when the foreign tax evasion facilitation offence was committed—

(a) B had in place such prevention procedures as it was reasonable in all the circumstances to expect B to have in place, or

(b) it was not reasonable in all the circumstances to expect B to have any prevention procedures in place.

(4) In subsection (3) “prevention procedures” means procedures designed to prevent persons acting in the capacity of a person associated with B from committing foreign tax evasion facilitation offences under the law of the foreign country concerned.

(5) In this Part “foreign tax evasion offence” means conduct which—

(a) amounts to an offence under the law of a foreign country,

(b) relates to a breach of a duty relating to a tax imposed under the law of that country, and

(c) would be regarded by the courts of any part of the United Kingdom as amounting to being knowingly concerned in, or in taking steps with a view to, the fraudulent evasion of that tax.

(6) In this Part “foreign tax evasion facilitation offence” means conduct which—

(a) amounts to an offence under the law of a foreign country,

(b) relates to the commission by another person of a foreign tax evasion offence under that law, and

(c) would, if the foreign tax evasion offence were a UK tax evasion offence, amount to a UK tax evasion facilitation offence (see section 45(5) and (6)).

(7) A relevant body guilty of an offence under this section is liable—

(a) on conviction on indictment, to a fine;

(b) on summary conviction in England and Wales, to a fine;

(c) on summary conviction in Scotland or Northern Ireland, to a fine not exceeding the statutory maximum.

47 Guidance about preventing the facilitation of tax evasion offences

(1) The Chancellor of the Exchequer (“the Chancellor”) must prepare and publish guidance about procedures that relevant bodies can put in place to prevent persons acting in the capacity of an associated person from committing UK tax evasion facilitation offences or foreign tax evasion facilitation offences.

(2) The Chancellor may from time to time prepare and publish new or revised guidance to add to or replace existing guidance published by the Chancellor under this section.

(3) The Chancellor must consult the Scottish Ministers, the Welsh Ministers and the Department of Justice in Northern Ireland when preparing any guidance to be published under this section.

(4) Guidance prepared and published under this section does not come into operation except in accordance with regulations made by the Chancellor by statutory instrument.

(5) A statutory instrument containing such regulations is subject to annulment in pursuance of a resolution of either House of Parliament.

(6) Where for the purposes of subsection (5) a copy of a statutory instrument containing such regulations is laid before Parliament the Chancellor must also lay a copy of the guidance to which the regulations relate.

(7) The Chancellor may approve guidance prepared by any other person if it relates to any matters within the scope of subsection (1).

(8) Approval under subsection (7)—

(a) must be given in writing, and

(b) may only be given on the condition that the person who prepared it publishes the approved guidance while it remains in operation as approved guidance.

(9) The Chancellor may withdraw an approval under subsection (7) by a notice given to the person who prepared the guidance.

48 Offences: extra-territorial application and jurisdiction

(1) It is immaterial for the purposes of section 45 or 46 (except to the extent provided by section 46(2)) whether—

(a) any relevant conduct of a relevant body, or

(b) any conduct which constitutes part of a relevant UK tax evasion facilitation offence or foreign tax evasion facilitation offence, or

(c) any conduct which constitutes part of a relevant UK tax evasion offence or foreign tax evasion offence,

takes place in the United Kingdom or elsewhere.

(2) Proceedings for an offence under section 45 or 46 may be taken in any place in the United Kingdom.

(3) If by virtue of subsection (2) proceedings for an offence are to be taken in Scotland, they may be taken in such sheriff court district as the Lord Advocate may determine.

(4) In subsection (3) “sheriff court district” is to be read in accordance with section 307(1) of the Criminal Procedure (Scotland) Act 1995.

52 Interpretation of Part 3

(1)In this Part—

• “conduct” includes acts and omissions;
• “foreign country” means a country or territory outside the United Kingdom;
• “foreign tax evasion facilitation offence” has the meaning given by section 46(6);
• “foreign tax evasion offence” has the meaning given by section 46(5);
• “partnership” has the meaning given by section 44(3);
• “relevant body” has the meaning given by section 44(2);
• “tax” includes duty and any other form of taxation (however described);
• “UK tax evasion facilitation offence” has the meaning given by section 45(5) and (6);
• “UK tax evasion offence” has the meaning given by section 45(4).

(2) References in this Part to a person acting in the capacity of a person associated with a relevant body are to be construed in accordance with section 44(4).