News & Insights

Failing to prevent tax evasion is an offence

Sian Ralph explains why businesses must ensure they have processes in place to prevent them being criminally liable for tax evasion.

Does your business have procedures to prevent your staff from facilitating (knowingly or unknowingly) acts of tax evasion by a third party? If not, you could now be at risk of prosecution with the threat of an unlimited fine and the resulting reputational damage.

Companies and partnerships now have to have in place reasonable procedures to prevent those associated with it (such as officers, staff and possibly even contractors) from failing to prevent, or facilitating tax evasion in the UK or overseas. Facilitating tax evasion is a strict liability offence, meaning HMRC will not need to show that there was any intention to facilitate tax evasion. The only defence will be if the company has put in place reasonable prevention procedures or it would be unreasonable to expect such procedures to be in place.

The new offence does not extend the scope of tax evasion, but it does enable HMRC to prosecute more parties when tax evasion has taken place. Instead of the perpetrator of the tax evasion being the only one to face criminal penalties, HMRC will now be able to include companies who are deemed to have assisted with the tax evasion (whether knowingly or unknowingly) because they failed to put in place sufficient procedures to prevent it happening.

The purpose of the new offence is to put more stringent obligations on companies to monitor their staff and keep in check processes that could be facilitating tax evasion.

What do you need to do?

The first practical step is to carry out a risk assessment by reviewing all business operations (including support functions) and categorise them as high, medium or low risk. This risk assessment process should be fully documented so that there is a clear audit trail.

You should then consider what procedures you already operate that minimise these risks and whether there are any gaps. HMRC has already indicated that relying on the existing anti-bribery or money laundering procedures is unlikely to be sufficient.

Finally, there then needs to be a mechanism for monitoring and reviewing the effectiveness of the procedures and a clear pathway for staff to report suspected breaches or any weakness. As with the initial risk assessment, the reviews should be documented in order to provide an audit trail.

Policies and terms of business

The rather limited guidance produced by HMRC indicates that they also expect to see companies making a clear commitment to prevent staff and other companies they deal with from being involved in tax evasion. We would accordingly recommend that standard terms and conditions of business and your staff handbook should be revised to record this commitment.

If you would like further information or guidance on this topic please do not hesitate to contact Sian Ralph.