The Criminal Finances Act will come into force on 30 September 2017. The importance of this new piece of legislation for businesses will probably lie with the new corporate offences of failing to prevent the facilitation of tax evasion. The new corporate offences only apply to relevant bodies (any corporate body or partnership) therefore it does not apply to individuals.
Under the Act, businesses could be criminally liable for the actions of employees who assist tax evasion by others acting in the capacity of an associated person, for example agents, contractors and sub-contractors.
Relevant bodies should implement reasonable prevention procedures. The HMRC draft guidance that is available states: “If a relevant body can demonstrate that it has put in place a system of reasonable prevention procedures that identifies and mitigates its tax evasion facilitation risks, then prosecution is unlikely as it will be able to raise a defence.”
What you need to do
The relevant guidance recommends 6 principles for applying “reasonable prevention procedures”:
1. Conduct a risk assessment to identify the nature and extent of its exposure to the risk of tax evasion or money laundering facilitation.
2. Create and implement reasonable procedures and policies proportionate to the risks identified. This includes creating a culture in which activity intended to facilitate tax evasion is never acceptable.
3. Undertake due diligence of staff, third parties and clients in relation to the risk they pose to the organisation.
4. Top-level management commitment to preventing the criminal facilitation of tax evasion.
5. Ensure that policies and procedures are communicated and understood throughout the organisation. This includes providing training and can be done through internal and external communication.
6. Monitor and review your prevention policies and procedures on a regular basis and make improvements where necessary.
The first step is doing a risk assessment of the nature and extent to which your business may be exposed to the risk of tax evasion. This should include assessing your internal systems and data for any potential opportunity for facilitating tax evasion.
Potential fines for corporate facilitation are unlimited.
HMRC provides the following guidance to SME’s when considering existing processes and procedures:
- Having a commitment to preventing the involvement of those acting on the relevant body’s behalf in the criminal facilitation of tax evasion, which might be demonstrated by issuing a prominent message from the board of directors (or the leadership team) against all forms of tax evasion
- An overview of its strategy and timeframe to implement its preventative policies
- Having terms in contracts (with employees and contractors) requiring them not to engage in facilitating tax evasion and to report and concerns immediately
- Providing regular training for staff on financial crime detection and prevention
- Having clear reporting procedures for whistle-blowing of suspected facilitation
- Ensure their pay and bonus policy/structure encourages reporting and discourages pursuing profit to the point of condoning tax evasion
- Monitoring and enforcing compliance with prevention procedures
- Having regular reviews of the effectiveness of prevention procedures and refining them where necessary.
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