Failure to Prevent Tax Evasion - The UK's newest Corporate Criminal Offence - Less than one month away

The UK is about to receive its newest corporate criminal offence. On 30th September, less than a month away, companies will be under a new duty to prevent the facilitation of tax evasion. As with existing corporate offences, the penalties can be severe. Convicted companies can face an unlimited fine, as well as the additional loss of reputational damage.

The offence is similar in form to the existing offence of "failing to prevent bribery", which has been in place since the Bribery Act 2010 came into force. This offence has already seen substantial convictions and fines handed out. In 2016, Sweett Group PLC was ordered to pay ~£2.25 million after failing to prevent bribery within a foreign arm of its business.

Who does it apply to?

The new offence can be committed by almost all corporate entities. Limited Companies, Limited Liability Partnerships and standard partnerships are all within the scope of the regulations, regardless of size or type.

The offence applies not only to a corporate entities employees, but to any "associated person" working on behalf of the company. This definition is widely construed, and will apply to agents and sub-contractors.

What is the form of the offence?

There are 3 main elements to the offence:

1. There must first be a criminal evasion of tax;
2. That tax evasion must have been facilitated or assisted by an "associated person" of the relevant company or partnership;
3. The company or partnership must have failed to put in place policies and procedures to prevent steps 1 and 2 from occurring.

What should I do about it?

Ultimately, companies may never be able to fully prevent steps 1 and 2 occurring where there is a sufficiently determined individual working towards that criminal aim. Step 3 is where companies should focus their attention - putting policies and procedures in place to catch or prevent the problem before it develops. The government has provided draft guidance suggesting that the following principles will be key:

• Proper assessment of the risk facing the business;
• Proportionate procedures based on that risk;
• A statement of high level commitment;
• Due diligence when appointing of 3rd parties;
• Proper training of staff; and
• Continuous monitoring and review.

These steps will be familiar to those already dealing with anti-bribery policies and procedures, and similar regulatory burdens. In the same way that most companies will have management systems for health and safety, the environment and anti-bribery, we will likely see anti-tax evasion becoming a normal part of corporate governance.

If you have any queries or concerns with regard to this new corporate offence please contact a member of our Business Risk and Regulation team for more information and guidance.