A new corporate offence of failure to prevent the criminal facilitation of tax evasion applies from 30 September 2017.

At a glance

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

  • Companies, partnerships and LLPs.

It does not apply not 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 put in place reasonable prevention methods to prevent facilitation by associated persons; or
  • 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 business 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 it's 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, UTR.
  • 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.

Updates

26 February 2019: updated for new HMRC guidance on self-reporting

5 October 2017: self-reporting added

12 May 2017: links to legislation and re-write

2 May 2017: Updated for Criminal Finances Act 2017 receiving Royal Assent.

18 October 2016: amended to reflect release of Criminal Finances Bill and draft guidance.

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