What Should A Business Do?
The new corporate offence of failure to prevent the facilitation of tax evasion came into force last year. The key thing to remember is that a business should look at its own size and the type of risk it carries, and apply the guidance in a proportionate way.
It goes without saying that what measures may be reasonable for a large business will be unreasonable for a smaller business.
What are the offences?
To consider what steps a business needs to take to protect itself, it needs to understand the two potential offences which could be committed. There are two new offences for companies for failing to prevent the facilitation of tax evasion, both in the UK and overseas.
What is tax evasion?
Tax evasion, (as distinct from legal tax avoidance), is the illegal non-payment or under payment of taxes. This is a criminal offence. On the other hand, tax avoidance is using a legal method to reduce tax. However, whilst tax avoidance is a legal activity, HM Revenue and Customs will take action against those who perpetrate abusive tax avoidance schemes.
Distinguishing between illegal tax evasion/abusive tax avoidance on the one hand, and legal tax avoidance can sometimes be difficult.
Who is liable?
As this is a strict liability offence, no intention, knowledge or participation on the part of the business is required for it to be found culpable. Therefore, a business can be held criminally liable for the actions of its staff, agents or other persons associated with it unless the business can demonstrate it has reasonable prevention measures in place.
Only a relevant body can commit a failure to prevent an offence i.e. a company, LLP or partnership. It is worth noting that individuals cannot commit the offence, although they may be subject to internal disciplinary action (see below). The legislation has a far reach, covering both UK based companies and foreign companies with a UK office.
What procedures should a business implement?
A business needs to:
- Train its employees so that they can recognise and avoid situations where there is the possibility of tax evasion being facilitated either by themselves or others
- Have a clear anti-tax evasion facilitation policy in place
- Encourage employees to be vigilant and to immediately report any suspicions of tax evasion
- Operate a zero tolerance HR policy in relation to any employee connected to the tax evasion facilitation event
- Investigate all instances of alleged tax evasion facilitation and assist the police and authorities
- Take firm action against any employees involved in tax evasion facilitation.
It is no use relying on anti-money laundering procedures.
A business can self-report failure to prevent facilitate of tax evasion by e-mail to HMRC. Prompt self-reporting to HMRC does not guarantee that the business will not be prosecuted, but it could be part of a defence and reflected in any penalties. The person making the report to HMRC must be authorised by their organisation to do so.
What are the penalties for failing to comply?
Penalties for the offences could include unlimited financial penalties, imprisonment and ancillary orders such as confiscation or serious crime prevention orders. Therefore, this offence should be taken seriously indeed.
This article is based on current tax law, practice and interpretation thereof as at the date of writing. This article is for general guidance only, and cannot be relied upon. Specific legal advice should always be sought on the facts of a particular situation.
This article first appeared in Property Week