Failure to prevent tax evasion: new criminal offences

Two new corporate offences of failing to prevent facilitation of UK and non-UK tax evasion came into force on 30 September 2017 (Criminal Finances Act 2017).

A relevant body (i.e. a body corporate or partnership (wherever incorporated or formed)) will be liable under these new offences when an employee, subcontractor, agent or any other person acting for and on its behalf criminally facilitates a tax evasion offence.

The offences operate in a similar way to those relating to bribery - the relevant body will have a defence if it can show that it had in place adequate procedures designed to prevent staff from facilitating such tax evasion.

Using lawful means to avoid tax (e.g. structuring finances so as to minimise tax liability) is not regarded as an offence. There has to be some degree of fraud involved with the intention of cheating the revenue of tax.

‘Tax evasion’ is either (a) cheating the public revenue; or (b) being knowingly concerned in, or in taking steps with a view to, the fraudulent evasion of a tax.

‘Tax evasion facilitation’ is either: (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 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.

To help relevant bodies to prepare for the introduction of the offences, HM Revenue & Customs (HMRC) has published new guidance on tackling tax evasion, which sets out six guiding principles companies should follow. In summary, these guiding principles are:

• Risk assessment: assess the nature and extent of the potential exposure to the risk of the criminal facilitation of tax evasion;
• Proportionality of risk-based prevention procedures: adopt procedures proportionate to the level of risk of facilitation of tax evasion faced by the company. What is reasonable and proportionate will depend on the nature, scale and complexity of the company’s activities, and the level of control and supervision the organisation is able to exercise over the individual;
• Top level commitment: the top-level management of a relevant body should foster a culture which makes it clear that facilitation of tax evasion is never acceptable, and be committed to preventing individuals working for it from engaging in criminal facilitation of tax evasion;
• Due diligence: apply due diligence procedures, taking an appropriate and risk based approach, in respect of individuals who perform or will perform services on behalf of the organisation, in order to mitigate identified risks;
• Communication (including training): prevention policies and procedures should be communicated, embedded and understood throughout the organisation (proportionate to the risk to which the organisation assesses that it is exposed); and
• Monitoring and review: monitor and review any risk assessment, preventative procedures and make improvements where necessary.

Comment: The HMRC guidance suggests that employers might like to include terms in employment contracts which require the employee not to engage in the facilitation of tax evasion and to report any concerns immediately. It would also be sensible to add the facilitation of tax evasion to any list of gross misconduct offences in the contract and disciplinary procedures. Bodies operating in high risk sectors may also wish to have an anti-tax evasion policy.