Failure to prevent tax evasion

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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.

New law

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.

Examples

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.

Consequences

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.  

About Rebecca Cave

Consulting tax editor for Accountingweb.co.uk. I also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.

Replies

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13th Sep 2017 09:46

That's good to hear. I have been in 10 year stuggle to get accountability in regard to potential tax evasion and fraud involving a company director and his accountant. It seems the accountant feels he is above the law on matters and the ICAEW do not seem to be interested in getting involved and although we escalated to director of professional standards requesting independent review their conclusion was 'we have decided not to investigate'. My sister spoke to an accountant that had been in prison for such an offense. His comment was "It's very common, all 'good' accountants do it"!

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13th Sep 2017 10:07

Most of is would be happy to pay taxes if we got value for money in return and a decent state pension at the end of it. Instead we see our taxes squandered on things like HS2, given away in foreign aid and so much corruption in the higher ranks of the public sector. Its hardly surprising we do all we can to legally minimise our taxes but some will always bend the rules a bit too far.

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By NH
to Marlinman
13th Sep 2017 12:42

Just to be clear,
Tax Evasion is not bending the rules, its breaking them.
Tax Avoidance is using the rules to your best advantage.
Although the media led by HMRC have sought to blur the lines on these two in recent years, they do still remain 2 very distinct things.

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to Marlinman
15th Sep 2017 10:16

Thats the oldest excuse in the book, we would like to pay but the government would waste it, so lets not pay.

I am going to Tesco's later, I will give your excuse a go, I would like to pay in full but..... you don't deserve it, you might spend it on stores you later decide you don't need and go on to close the store down.

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13th Sep 2017 11:34

Balancing, hopefully this was an isolated case....that said, for every 'dodgy' accountant I would suggest there are at least 100 taxpayers who will have asked them to do something illegal or commit tax evasion on the taxpayers behalf. Most will resist...

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to justsotax
13th Sep 2017 13:35

Thank you for your comment. I do hope you are right. It is quite concerning though that the I.C.A.E.W. 'independent review body' (who are actually only 50% independent) were not even interested in investigating a case whereby the accountant had a Fiduciary Duty of Care. A financial journalist that I wrote to replied that 'the perils of self-regulation are where the regulatory bodies circle their wagons around miscreant practitioners and firms'.

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14th Sep 2017 09:19

Are cash payments outlawed?

Say client makes a cash payment for some building work and gets receipt.

If the builder pockets money (which client has no way of knowing) is the client facilitating tax evasion.

My understanding is that this not only applies to us but to all our partnership and limited company clients as well.

Coming hot on the heels of new AML and CRS rules this is another joyous burden we all have to deal with.

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14th Sep 2017 10:13

I think what the Revenue are trying to say is that they wish to take no responsibility and instead by passing it on open up another Revenue stream of penalties.

This direction of travel would also imply that in the near future it will be determined that anyone who accepts or makes payment by way of cash is in some way assisting in tax evasion/money laundering etc. That seems particularly bad news for the drug dealers....but then they don't generally register their businesses for SA....

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15th Sep 2017 10:10

'Where a person makes a mistake or is careless, fraudulent tax evasion is not in point'.

In the short term lets all hang our hats on the above...and hope. Though I bet HMRC criteria of the above is very, very narrow.

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