Are you aware of the new law coming in to place? According to a YouGov survey carried out in April 2017, more than three-quarters (76%) of senior decision makers in British businesses are oblivious to the new law and how their failure to prevent the facilitation of tax evasion could be a criminal offence. It's why we've written this blog post: read on to find out more about what you need to know and action in your business.
Under the new law, your business could be found guilty of a criminal offence if an employee or associated person assists in another person’s tax evasion. Even if management is not involved in or aware of what’s going on, it will still be deemed a committed offence. Whilst this may seem harsh, your business will have a defence if you put ‘reasonable prevention procedures’ in place. Those prevention procedures are what should be an area of focus moving forward.
The HMRC have published draft guidance on the offences and this details 6 guiding principles businesses should take into account when establishing procedures to prevent tax evasion taking place.
All businesses will have to undertake a risk assessment to identify the likelihood of tax evasion within the organisation and the potential gaps in the existing control environment.
You need to assess your employees and associated persons to understand whether they have the motive, opportunity and means to facilitate tax evasion and if so, how that can be managed. If you’ve put all reasonable prevention procedures in place then your business may have a defence.
The new offence was announced in 2015, after the revelations in the BBC Panorama programme about the activities of HSBC employees in Switzerland which, under existing rules, couldn’t be attributed to HSBC. The new rules are designed to prevent businesses from turning a blind eye to the activities of their staff and other representatives.
It’s important to note that it’s not just the banks and professional service firms which could be affected. The new rules mean all businesses will need to take some action. The minimum expected for all businesses will be to have at least carried out a risk assessment.
At present, there isn’t a confirmed date; however it’s likely to be at the end of September this year. But, you shouldn’t wait until then to take action, as you may have insufficient time to take the necessary steps to prevent the business being exposed.
There will be two new offences. The first will apply to all businesses, wherever they’re located, in respect of the facilitation of UK tax evasion. The second will apply to businesses with a UK connection in respect of the facilitation of non-UK tax evasion. This will apply to both companies and partnerships.
Whilst businesses aren’t expected to have everything ready on day one, the draft guidance details that HMRC expects there to be fast implementation focusing on the major risks and priorities, with a clear time frame and implementation plan when the legislation comes into force. Whilst you may not have everything ready on day one, it is expected to see a clear commitment to compliance of day one and most likely a risk assessment to have been completed.
Criminal tax evasion takes pace when there is an intention to cheat the public purse or statutory offences of fraudulently evading taxes, such as income tax and VAT.
It occurs when a person knows they have a tax liability and forms a dishonest intention not to declare it. However, it doesn’t arise when a person makes a mistake or is careless. It also doesn’t apply when a person actively seeks to avoid tax, even if the planning in question does not work, provided that the person has an honest belief when filing his or her tax return.
The employee or associated person must have a criminal intent and this would the fraud.
The offence applies if an associated person facilities evasion. Associated persons are employees, agents and other persons who perform services for or on behalf of the business and can include subsidiaries and joint ventures.
Smaller businesses are required to make a risk assessment. The measures taken must be proportionate to the potential risks.
For smaller organisations in low risk sectors, suggested steps to take include:
HMRC has been reported in The Times to be boosting its fraud investigation service as part of a major prosecution drive over tax evasion. Investment in fraud investigation service staff rose 10% from 2015/16 to 2016/17. It's all part of the preparation for the Criminal Finances Act becoming operational in September 2017.
If your business commits one of these tax evasion offences you could face an unlimited financial penalty, as well as ancillary orders such as confiscation orders or serious crime prevention orders.
Now is the time to start implementing these changes for the new law, a date for which is yet to be confirmed.
All businesses should consider this now and ensure they’re aware of and, have control over how your employees are operating to reduce your risk of exposure to such offences. Not only are you potentially exposed to a heavy fine, a successful prosecution could cause you serious reputational damage, definitely not something to overlook!
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The content of this post is up to date and relevant as at 29/06/2017.
Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.
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