[08.09.17]

The Criminal Finances Act 2017, which comes into effect on 30^th September 2017, make companies and partnerships criminally liable if they fail to prevent tax evasion by either a member of their staff or an external agent.  Prosecution could lead to both a conviction and unlimited financial penalties.

These new rules cover both UK and overseas taxes (where there is a UK element).

The Government has set out that for a firm to be liable under the Act, there must have been:

Stage one: criminal tax evasion by a taxpayer (either an individual or a firm) under existing law.

Stage two: criminal facilitation of the offence by a representative of the firm, as defined by the Accessories and Abettors Act 1861.

Stage three: the firm failed to prevent its representative from committing the criminal act outlined at stage two.

The aim of the new rules is to target deliberate and dishonest behaviour.  The Chartered Institute of Taxation has provided us with some guidance to what constitutes such behaviour.  This includes:

• Hiding disallowable expenditure in a category which HMRC is unlikely to question; eg. personal expenditure not declared on a P11D
• Inaccurately describing the services a firm has provided to reduce their client’s tax bill
• Being asked and agreeing to send an invoice to a different person than the work was done for
• Intentionally manipulating documents, eg. falsifying dates on dividend documents to alter the tax year in which the tax will become due.

A business may avoid criminal liability where it can show that it had implemented reasonable prevention procedures, or where it can show that in the circumstances it would have been unreasonable or unrealistic to have expected it to have had procedures in place.

It is therefore essential that companies review their current practices and procedures to minimise any risks, and to put in place appropriate monitoring and training of staff at all levels. The Act effectively makes owners and managers responsible for preventing their staff and external agents and consultants from committing tax evasion.

HMRC’s Guidance suggests firms undertake risk assessments of their products, services, client data and internal systems that could be used to facilitate tax evasion.

We would urge all clients to ensure that their procedures, systems and staff training protect them from falling foul of this new Act.  Areas to consider include:

• Does senior management make clear to employees that the firm is committed to preventing the facilitation of tax evasion.
• Do your contracts with employees and external contractors require them not to engage in facilitating tax evasion, and set out to report any concerns straightaway.
• Does your staff training cover recognising and preventing financial crime.
• Do you have a safe whistle-blowing procedure.
• Do you have a risk-tiered due diligence procedure in place
• Do you monitor and enforce your prevention procedures.
• Do you regularly review your prevention procedures and change them where required.

The team at Castletons can review your procedures and systems to ensure that you will not fall foul of this new Act.  Please contact Jackie or Andrew for further information.

Castletons Accountants