The Criminal Finances Act 2017 came into force in the UK on 30 September 2017. It introduces new corporate criminal offences of failing to prevent an employee, agent or any other person who is performing services for the organisation from criminally facilitating the evasion of tax, whether the tax is owed in the UK or in a foreign country.
The new offence does not alter what is criminal, but changes who can be held to account for the acts. The new offences are a reaction to the Government’s frustration at the difficulty in attributing criminal liability to companies and partnerships (“relevant bodies”) where tax evasion was facilitated by employees or other associates.
There are three stages to the offence. The first is criminal evasion of tax by the taxpayer. This means the offence of cheating the public revenue and all other statutory offences involving dishonestly taking steps with a view to, or being “knowingly concerned in” the fraudulent evasion of tax. Anything falling short of a criminal offence at taxpayer level will not count. The second stage is criminal facilitation of the tax evasion by an “associated person” of the relevant body who is acting in that capacity. This requires deliberate and dishonest action to facilitate the evasion. Assisting unwittingly, even if negligently, will not be caught by this offence. In addition, an individual will not be “acting in the capacity of” an associated person, where they are an employee acting in the course of their private life and “as a frolic of their own”.
The final stage is failure by the relevant body to prevent the representative from committing the criminal facilitation. This is a strict liability offence, meaning that if stages one and two are committed then the relevant body will have committed the new corporate offence unless it can show that the time of the offence the relevant body had reasonable prevention procedures in place to prevent the criminal facilitation offences.
In determining the reasonable prevention procedures, the government has given guidance by setting out six guiding principles. These include conducting risk assessments, adopting a proportionate risk based prevention procedure, top level commitment, due diligence, communication (including training) and monitoring and review.
From an employment perspective, companies should therefore be establishing good training on the offence and also the effective establishment of whistleblowing procedures. The guidance published by HMRC also indicates that employers should consider having terms in employment contracts and contracts for services requiring employees and others providing their services not to engage in the facilitation of tax evasion and to report concerns immediately. Such clauses could also confirm that the employee or contractor will comply with the employers policy on the prevention of facilitation of tax evasion.
Employers may also wish to introduce an anti-facilitation of tax evasion policy or include reference to the offence in their existing handbook. A policy should be adapted to the specific business risks of the employer and should set out the reasonable prevention procedures that the employer has put in place as a defence against the corporate offence. The HMRC guidance sets out some suggested reasonable prevention procedures for lower risk SME’s which includes:
- Having a commitment to prevent the involvement of those acting on the relevant body’s behalf in the criminal facilitation of tax evasion, which might be demonstrated by issuing a prominent message from the board of directors (or the leadership team) against all forms of tax evasion.
- Providing regular training for staff on preventing the facilitation of tax evasion, which may form part of wider financial crime detection and prevention training.
- Having clear reporting procedures for whistleblowing of suspected facilitation of tax evasion offences.
- Ensuring that the pay and bonus policy/structure encourages reporting and discourages pursuing profit to the point of condoning tax evasion.
- Having regular reviews of the effectiveness of prevention procedures and refining them where necessary.
- Monitoring and enforcing compliance with prevention procedures.
- Giving an overview of its strategy and timeframe to implement its preventative policies.