The Criminal Finances Act 2017 came into effect on 30 September 2017 and makes companies, partnerships and body corporates criminally liable for failing to prevent the facilitation of tax evasion.

Getting to know the new Criminal Finances Act

The Act introduces two new criminal offences, relating to the failure to prevent the evasion of both UK taxes and foreign taxes.

Under the new rules, companies and organisations will be held criminally liable if they fail to prevent their members of staff, external agents or associated persons acting on their behalf from facilitating a criminal act of tax evasion.

The three stages of the offence

Under the new Criminal Finances Act, there are three stages that apply to the UK and foreign tax evasion offences (additional requirements apply to the foreign offence). The first two stages are already offences under existing criminal law:

Stage one:

  • A criminal act of tax evasion by a taxpayer (whether an individual or a legal entity) has been committed.

Stage two:

  • A person associated with the company or organisation has criminally facilitated the taxpayer evasion. This includes employees of the company, an agent or other individual who acts on behalf of the company.

Stage three:

  • The company in question has failed to put in place reasonable measures to prevent the associated person from criminally facilitating the act.

Only ‘relevant bodies’ can commit the stage three offence: such entities include incorporated bodies and partnerships. If stages one and two are committed, the body is deemed to have committed the new corporate offence.

What are companies required to do?

For a company or partnership to avoid being held criminally liable for failing to prevent tax evasion, it must be able to demonstrate that it has in place a system of reasonable procedures to identify and mitigate the risk of any facilitation of tax evasion.

The government has outlined six guiding principles which companies should seek to incorporate into their safeguarding processes, as part of a risk-based approach:

  1. Risk assessment – Companies and partnerships are advised to assess the nature and the extent to which they are exposed to the risk of staff members or other associates committing a criminal act of tax evasion.
  2. Proportionality of risk-based prevention procedures – Any procedures implemented should take into account the nature, scale and complexity of the relevant company’s activities.
  3. Top level commitment  – The senior management of the organisation in question should be committed to preventing their staff members from engaging in the criminal act of facilitation of tax evasion. Companies are advised to adopt a culture in which the facilitation of tax evasion is never acceptable.
  4. Due diligence – The organisation is required to apply proportionate due diligence procedures in respect of individuals who perform or will perform services on its behalf.
  5. Communication – The company in question must ensure that its employees and agents are properly trained and that its prevention policies are well communicated, implemented and understood throughout the organisation.
  6. Monitoring and review – Companies and partnerships must carry out regular, thorough reviews of their preventative policies, and make changes to these where necessary.

What are the penalties for non-compliance?

The offence of tax evasion in the UK will be investigated by HMRC, and penalties include unlimited fines and ancillary orders (such as serious crime prevention orders and confiscation orders).

Where can I find out more?

Comprehensive factsheets are available from the government: these can be accessed here. HMRC has also issued detailed guidance on the matter on its website.

Quorum Training are able to offer your firm onsite training on the Criminal Finances Act and will tailor the course to meet your specific requirements. Our speakers have many years’ experience in delivering informative and detailed training programmes, ensuring that businesses are kept up-to-date on key issues.

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