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Corporate Criminal Offence – Failure to Prevent Facilitation of tax Evasion

It has recently been reported that HMRC have launched their first criminal investigations in connection with the failure to prevent the facilitation of tax evasion, after a slow start in using these powers.

The Offence

The Criminal Finance Act 2017 (the “CFA”) came into force in September 2017, introducing a corporate criminal offence of failing to prevent facilitation of tax evasion (the “Offence”). The rules in the CFA provides for a positive obligation on corporate bodies to implement adequate procedures to prevent the facilitation of tax evasion.  All sectors and industries are subject to the rules, and it also covers tax evasion in overseas countries provided there is a connection with the UK.

HMRC have yet to meet their goal of conducting 100 investigations in relation to the Offence per year (on 9 February 2019, Mel Stride MP (former Financial Secretary to the Treasury and Paymaster General), confirmed that since the CFA came into force, HMRC have conducted less than five criminal investigations in relation to the Offence), but perhaps this is about to change.

Self-Reporting

On 21 February 2019, HMRC released guidance for corporate bodies on self-reporting with the intention to “help relevant bodies understand the types of processes and procedure that can be put in place”. HMRC stated that it has “redesigned, the self-reporting route” to become a more “robust and friendly process”. However, the reporting individual must be prepared to be the point of contact should HMRC choose to investigate. A report may be submitted via the HMRC website by an individual who is an authorised representative of the corporate body.

The person making the report to HMRC will not be guilty of the Offence; however, they are not guaranteed immunity from prosecution on other grounds. Self-reporting will be taken into consideration by the prosecution and may be reflected in any penalties that are imposed.

The Defence

The statutory defence to the Offence is to have “reasonable prevention procedures” in place. The defence is modelled on the 6 principles that also underpin the UK Bribery Act 2010 defence of “adequate procedures”, including:

  • Top level commitment
  • Risk assessment
  • Due diligence
  • Proportional procedures
  • Training and Communication
  • Monitoring and Reviewing

A comprehensive compliance system in relation to the Offence will have a range of supporting documents and policies which are acted on, implemented and regularly reviewed.   Ashfords’ Tax and Business Risk teams work together to help our clients put such robust systems in place.

Overall

Although HMRC have been slow to start investigations under the CFA, it is fair to assume that this will change.   Corporates should ensure they have adequate compliance systems to enable them to defend a charge, should the worst happen.

For any more information on any of the topics in this article please contact Clare Coverdale or Nicola Manclark from our Corporate Team on c.coverdale@ashfords.co.uk or n.manclark@ashfords.co.uk

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