Corporate Criminal Offence: failure to prevent tax evasion

Corporate Criminal Offence: failure to prevent tax evasion

HMRC published updated guidance on Corporate Criminal Offence in October 2017.

 

The legislation is within the Criminal Finances Act 2017.

 

The potential risk of the Corporate Criminal Offence affecting a local or fire authority is one that cannot be overlooked and is an important aspect to consider as part of Tax Strategy procedures.

 

It applies to “relevant bodies”, which include local and fire authorities but not corporation soles, such as Police and Crime Commissioners and Chief Constables.

 

Only two things need to happen for a relevant body to commit the Offence:

  • A fraud is committed; and
  • It is facilitated by someone associated with the relevant body

 

A relevant body’s employees are associated with it as well as contractors supplying services to the relevant body.

 

Facilitation includes failure to prevent.

 

Three simple examples:

  1. An employee agrees to pay a contractor in cash for construction-related work at a local authority school on the understanding that VAT will not be accounted for the payment will be made outside of the Construction Industry scheme
  2.  An outsourced payroll contractor agrees with an individual to turn a blind eye to the IR35 rules
  3. An employee agrees to pay a third party for a casual labour task as the contracted provider, who should have been treated as an employee for PAYE and NIC purposes, has no business bank account

 

In these cases, the local or fire authority is liable.  It is a strict liability offence, meaning that knowledge of the actions is not needed for there to be a liability.

 

Unless, a relevant body has put in place reasonable preventative procedures there will be an investigation by HMRC with potential prosecution and an unlimited financial penalty.

 

HMRC’s guidance on reasonable prevention procedures centres on six core principles:

  • Risk assessment: The relevant body should assess the nature and extent of its exposure to the risk of those who act for or on its behalf engaging in activity during the course of business to criminally facilitate tax evasion, analysing whether they have the motive, opportunity and means to do so and how that risk might be managed.  The relevant body should keep the risks under review.  The risk assessment is key to all the other principles which need to be evaluated in the light of the analysis of risk.
  •   Proportionality: To be ‘reasonable’, prevention procedures should be proportionate to the risks the relevant body faces, and this depends on the nature, scale and complexity of its activities.  This takes into account the level of control and supervision the relevant body is able to exercise over a particular person acting on its behalf and the proximity of the person to the relevant body.  Burdensome procedures designed to perfectly address every conceivable risk, no matter how remote, are not required.
  • Top level commitment: The top-level management of a relevant body should be committed to preventing persons associated with it from engaging in the criminal facilitation of tax evasion.  Those at the most senior levels of a relevant body are best placed to foster a culture where actions intended to facilitate tax evasion are considered unacceptable.
  •  Due diligence: A relevant body should apply due diligence procedures, taking an appropriate risk-based approach, to identify the risk of criminal facilitation of tax evasion by associated persons, in order to mitigate such risks.
  •  Communication (including training): Ensuring that the relevant body’s policy against engaging in activities to help clients commit tax fraud is communicated, embedded and understood throughout the organisation helps deter those providing services on behalf of the relevant body from engaging in such activities.  Communication should be from all levels within a relevant body and proportionate to the risk to which the relevant body assesses that it is exposed.
  • Monitoring and review: The organisation monitors and reviews its prevention procedures and makes improvements where necessary.

 

Whilst there might be discreet procedures within the authority, eg procurement rules and segregation of duties, such procedures need to be fully integrated into a specific document and actively managed and embedded in the organisation to comply with the new legislation and thus minimise risk.

 

PSTAX can work with you to mitigate the risk by reviewing your procedures and making recommendations.  Our consultants have wide experience from working for HMRC and for public authorities and are well placed to help develop a tax strategy that can assist your organisation minimise the risk of committing the Corporate Criminal Offence.

 

If you have any questions about this, please contact:

Nick Burrows        07805 449651         Nick.Burrows@pstax.co.uk

Peter Gladdish     07977 513735         Peter.Gladdish@pstax.co.uk

Duncan Groves    07760 271490         Duncan.Groves@pstax.co.uk