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Failure to prevent the facilitation of tax evasion – how can you manage the risks?

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  • Publish date: 17 April 2018
  • Archived on: 17 April 2019

In 2015 the UK announced that it would introduce new criminal laws to apply to corporations who fail to put in place reasonable procedures to prevent their representatives criminally facilitating tax evasion, both in the UK and overseas.

This has resulted in two new offences:

  • Failure to prevent the criminal facilitation of a UK tax evasion offence
  • Failure to prevent the criminal facilitation of an overseas tax evasion offence

The new offences came into force last year as part of the Criminal Finances Act. Both require criminal conduct on the part of the taxpayer and both require criminal conduct on the part of an ‘associated person’. In the context of the legislation ‘associated person’ includes anyone who provides services for or on behalf of the body corporate or partnership e.g. contractors, agents or employees. 

The offences are largely based on the Bribery Act 2010, with the equivalent defence of having reasonable procedures to prevent the facilitation of tax evasion.

Such procedures might include:

  • Prominent messaging to staff
  • Contractual terms (with employees and contractors) requiring them not to engage in facilitating tax evasion and to report any concerns immediately
  • Regular training for staff
  • Adherence to the Professional Conduct in Relation to Taxation guidance (PCRT)
  • Clear reporting procedures for suspected facilitation of tax evasion offences
  • Adherence to the ICAEW Duty to Report Misconduct regulations
  • Carrying out second partner reviews on tax advice given
  • Monitoring of compliance with prevention procedures
  • Documentation of the above.

HMRC have said that the legislation does not seek to hold relevant bodies to account for the crimes of their clients, nor does it require them to prevent their clients from committing tax evasion. Nor is the legislation designed to capture the misuse of legitimate products and services that are provided to clients in good faith, where the individual advisor and relevant body did not know that its products were intended to be used for tax evasion purposes.

Above all, the approach taken by firms should be risk based and proportionate. Practitioners should note that the failure to prevent tax evasion offences only applies to bodies corporate (including LLPs) or partnerships, and these entities will need to have reasonable procedures in place to prevent it (see appendix). Although the new offence does not apply to sole practitioners, they still need to be alert to the risks of aiding and abetting criminal tax evasion, as this itself remains an offence.

ICAEW hosted a webinar in conjunction with HMRC to help practitioners navigate the new Criminal Finances legislation. It is available here. In additional ICAEW has published a help-sheet containing an introduction to the offences and a number of scenario based examples.

HMRC have also published detailed guidance on the offence, with some useful examples specifically aimed at smaller businesses.

David Stevens , Integrity and Law Manager, Technical Strategy Department
Practicewire, April 2018