All businesses should be aware that from 30th September 2017, it will be a criminal offence under the Criminal Finances Act 2017 if it fails to prevent its employees, or any person associated with it, from facilitating tax evasion (either in the UK or overseas) – so businesses need to start considering the implications of this new offence and what action they should be taking to minimise their risk of exposure.
Consider how your business could be impacted if an associated person of the business knowingly assisted a customer in evading tax in the UK or overseas, resulting in criminal lability for your business.
Another example would be that an organisation may be liable for actions carried out by its staff both in their interactions with customers and third parties and in relation to the organisation’s own affairs (such as PAYE arrangements).
An organisation can also be liable for its engagement with third parties such as suppliers, distributors and contractors.
In any of these examples, if that customer, employee or third party provides services on your behalf, they may be considered an “associated person” – and therefore you will be liable if they facilitate the evasion of tax. Businesses are likely to have to conduct more due diligence in relation to those suppliers, contractors and employees and will probably have to look much more closely at where and the manner in which payments are made for goods and services, especially if off-shore accounts are involved or payments are made in cash.
The new legislation has, deliberately, been drafted widely and this means that organisations need to have oversight of the risk associated with their customers, employees, third parties and over their own downstream activities.
The only defence mechanism available to demonstrate that the organisation has reasonable procedures in place to prevent the facilitation of tax evasion – these are modelled on the UK Anti-Corruption & Bribery Act and are likely to compromise one or more of the following:
- ensuring that there is top level commitment within the organisation to prevent the facilitation of tax evasion;
- carrying out a risk assessment to identify the specific risk of facilitation;
- implementing procedures which are proportionate to the specific risks identified in the risk assessment;
- performing due diligence of staff, third parties and customers in proportion to the risk that they pose to the business;
- communication (including training) to employees and third parties to ensure procedures are embedded and understood;
- carrying out on-going monitoring and review of procedures and risk assessment.
Although businesses such as banks and professional service firms may on the face of it be exposed to a higher risk of the facilitation of tax evasion, the offences are a challenge to any organisation’s compliance requirements, whatever its business sector. Businesses are likely to have to conduct more due diligence in relation to their suppliers, contractors and employees, consider much more closely where and the manner in which payments are made for goods and services, especially if off-shore accounts are involved or payments are made in cash.
At a practical level, it is suggested that all businesses should be taking action now to ensure that they are aware of and have conduct of how their employees, agents and service providers are operating to reduce the risk of exposure to a facilitation of tax evasion offence.
Apart from the risk of incurring a heavy fine, a prosecution is likely to lead to reputational risks.
You may want to look at this topic in conjunction with your Anti-Corruption & Bribery Procedures and generally in relation to the reporting and review procedures in place in relation to invoices, the manner in which payment is received, the manner in which you engage suppliers and the manner in which you engage with your employees and contractors.
Clive Borthwick is a Corporate Partner at Taylor Walton LLP (Solicitors in Luton, Harpenden and St Albans) and can be contacted at email@example.com.