The new corporate criminal offence comes into effect on 30 September 2017, and all accountants, tax advisers and company directors need to assess their risk of exposure.
The underlying law is contained in the Criminal Finances Act 2017 (CFA 2017), which was hurriedly passed on 27 April 2017 before parliament dissolved for the general election.
There are two new offences under this act. The first applies to any business, wherever it is located, in respect of the facilitation of the evasion of UK tax. The second applies to businesses with a UK connection in respect of the facilitation of non-UK tax evasion. The new offences cannot apply to individuals, so the business concerned can only be a partnership or company.
The business will be vicariously liable if an employee or other associated person criminally facilitates tax evasion whilst acting in that capacity for the business, even if the senior management of the business was not involved or aware of what was going on. An associate includes all employees and persons providing services to the business, such as an accountant or adviser.
Tax evasion in this context is the fraudulent evasion of UK taxes or overseas taxes by a taxpayer (individual or legal entity) under existing law. To be fraudulent there has to be dishonest behaviour. Where a person makes a mistake or is careless, fraudulent tax evasion is not in point.
The facilitator of the tax evasion must do so knowingly. Unwitting facilitation of tax evasion is not enough to be caught under this offence.
The CIOT has produced some brief guidance which includes these examples of tax evasion which could be relevant to tax advisers:
- Hiding disallowable expenditure in a category which HMRC is unlikely to question, for example, personal expenditure which has not been declared on the individual’s P11D as a benefit in kind.
- Inaccurately describing the services provided in a client’s fee note to minimise the client’s tax bill.
- Intentional manipulation of documents, for example, falsifying dates on dividend documents and the board minutes to alter the tax year in which tax would become due.
- The submission of a tax return, which includes a claim which the adviser knows is without any justifiable basis. This is distinct from submitting a claim where the entitlement to the relief may genuinely be in doubt and all the relevant facts are fully disclosed to HMRC.
- Knowing that a client wants to set up a structure to try to hide income, gains or assets from a tax authority and continuing to help the client to facilitate that structure.
- Being asked and agreeing to send a bill to a different person than the work was done for, eg to the company rather than the director, a non-UK affiliate rather than the UK client. There could be an acceptable explanation and the tax liabilities could be correctly returned, but there is a risk that the client intends to achieve a better tax position that is not consistent with the true facts.
HMRC published its final guidance on these new offences on 1 September 2017, which includes many more examples of situations where tax evasion may be present.
Who is at risk?
The types of businesses most at risk, as well as accountants and legal advisers, are those which pay large sums to consultants, do cross-border business, engage casual or itinerant labour and contractors, or handle goods and services where organised fraud is a risk.
However, all company boards should be discussing this issue to show that the company has written policies in place to counter acts such as which could result in tax evasion. Businesses also need to ensure that they have adequate training in place for all staff on tax evasion.
The consequences for breaching the act include unlimited financial penalties, confiscation orders, serious crime prevention orders, regulatory issues and reputational damage. A criminal conviction under CFA 2017 could make it more difficult to win government contracts in the UK or abroad.
The main line of defence is for the business to have reasonable procedures in place to prevent the facilitation of tax evasion, or that it was not reasonable in the circumstances to expect there to be a procedure in place. Your firm and your clients need to conduct risk assessments and put in place proportionate prevention controls and procedures.