With so much red tape and other recent changes to IR35 passing your desk, you can be forgiven for taking little notice of this legislation passed by Parliament last April. An introduction date of 30th September means that action may need to be taken to ensure you remain compliant.
The Government believes that relevant bodies should be criminally liable where they fail to prevent those who act for, or on their behalf from criminally facilitating tax evasion.
Here is a link to the draft Government Guidance.
Tax evasion is and always has been a crime. In essence it includes fraudulently making a misstatement concerning your tax affairs to reduce income, increase your eligible costs or deliberately conceal income. Tax avoidance by contrast is using the literal meaning of tax law in order to reduce or eliminate your current or future tax liabilities. The latter is legal although its current usage tends to refer to highly artificial schemes and is generally frowned upon by the courts (and press).
The Criminal Finances Act 2017 is however concerned only with evasion and how the impact can now be extended to not only those who have directly committed this offence, but to those who have passively allowed such an offence to happen.
There have been a number of triggers for this including the now notorious ‘Panama Papers’ – but another notable example has been the BBC Panorama allegations concerning HSBC’s private client team in Switzerland and its use of offshore accounts to conceal funds. Although prosecutions are going on in other countries following this, there was no equivalent legislation in the UK to permit prosecution proceedings of the UK parent company as being directly or indirectly responsible.
The new offence of corporate facilitation of tax evasion now makes it clear that any company or partnership actively or passively enabling tax evasion to take place will be prosecuted. There are two key parts to this – evasion must have actually taken place and a person (employee, agent or other performing services to the company in question) must have facilitated. The additional test is that the company in question did nothing to prevent it happening.
The new prosecution offences are not aimed at just UK tax – there is an additional offence to target evasion of tax in overseas jurisdictions.
The level of ‘dishonesty’ being targeted can include non-disclosure, concealing evidence and even ‘turning a blind eye’.
It will be some time before this is properly tested in the courts, but the shift from proving that the business actually directed someone to commit an illegal act (this still needs to happen for the offence to be activated) to merely being in a position of authority and doing nothing about it, will mean a far wider and possibly easier net from which the authorities can trawl.
So how can you protect your business?
If you haven’t already, a clear starting point is to put in ‘reasonable prevention procedures’ to identify and mitigate tax evasion facilitation risk. HMRC have stated that if companies can clearly demonstrate that adequate measures have been put in place, then ‘prosecution is unlikely.’
If you are already familiar with the Bribery Act 2010 (as you should be) then there will be strong parallels with this.
Can you safely say you are low risk? You should consider where and how your payments for goods and services are made. Are transactions in cash? Are payments made to offshore accounts? Do you use offshore accounts and in what way?
A company director will become responsible for the actions of employees in subsidiaries, wherever located.
The potential penalties can include unlimited financial penalties, possible confiscation orders, and where relevant, loss of public contracts.