It has now been over fourteen months since the main provisions of the Criminal Finances Act 2017 came into force on the 30th September 2017, and there are important things that business owners need to know (if they don’t already).

What Does the ‘Criminal Finances Act’ Mean?

Whilst tax evasion was technically already a criminal offence, prior to the new provisions there weren’t any positive obligations on any company to take steps to stop another person engaging in illegal tax evading activity. With all but a few exceptions, if you did not personally participate, you could have stood idly by while another person committed offences. The new provisions brought this to an end this as far as taxation was concerned.

How Does it Work?

The Act renders a business (which includes partnerships) liable to prosecution if a relevant ‘tax offence‘ is committed by an employee or other person performing services for the company (including agents etc).

To be guilty of an offence, the following must apply:

• There was a criminal evasion of tax (whether that resulted in a criminal prosecution or not).
• An ‘Associated Person’ facilitated the commission of that offence (i.e. by a person linked to your business).
• A failure by the firm to prevent that facilitation taking place – This part is strict liability; the business does not need to know that anything unlawful was taking place.

An ‘Associated Person’ means: “…an employee, a person acting in the capacity of an agent, or any other person who performs services for or on behalf of your company who is acting in the capacity of a person performing such services”.

Interestingly, the provisions apply in relation to the United Kingdom and offences committed abroad.

Are there any Defences available for my business?

Yes, if you are able to prove:

a) That you had in place such prevention procedures as it was reasonable in all the circumstances to expect you to have in place

or

b) That it was not reasonable in all the circumstances to expect you to have any preventative procedures in place.

As a result therefore it is essential that your business needs to have reasonable safeguards in place to be able to try and prevent tax evasion.

What Is The Criminal Penalty?

Your company could potentially face an unlimited fine. Whilst there are currently no sentencing guidelines covering this offence, we would anticipate any fine would be very large and in some cases, tens of thousands of pounds. You would also need to try and measure the reputational damage and other damage (such as loss of future contracts) that may follow.

What Can I Do To Protect My Company?

Your business will need to have policies and processes in place designed to prevent employees and others committing tax facilitation offences. There isn’t a ‘one size fits all’ policy toolkit, each business is different. To devise such procedures, you will need to:

• Conduct a risk assessment.
• Decide on what is a proportionate response to that risk.
• Ensuring top-level commitment from within the organisation for implementing any policy and procedures.
• Maintain due diligence.
• Communicating the policy and procedures, training all employees & agents who carry out work on your behalf.
• Monitor and review the policies and procedures to ensure continued effectiveness.

But are HMRC actually prosecuting anyone yet?

While HMRC didn’t expect businesses to have everything in place before the 30th September 2017, it did have some ‘day one’ requirements, with HMRC stating in its guidance that:

“[We expect] there to be rapid implementation, focusing on the major risks and priorities, with a clear timeframe and implementation plan on entry into force’.”

How can expert tax solicitors assist?

The laws relating to business can be challenging and complex, but when they might also land your company before the Courts and facing huge fines, therefore it is best to do all you reasonably can to put protections in place.

These provisions of the Criminal Finances Act 2017 are only summarised above as legal commentary; it will hardly surprise you to know that they are in fact much more complicated, so you should take care to understand in detail your actual obligations and obtain legal advice.

If your business is being investigated/prosecuted under this legislation, then Burton Copeland LLP are here to help. Our White Collar and Financial Crime Department can provide you with professional expert advice if you need help contact us here.

For further information you can download the HMRC government guidance on the act here: http://bit.ly/2FLrIyK