The push towards global transparency gained teeth on 30 September 2017, with the new corporate criminal offence for failure to prevent tax evasion. HMRC automatically receive information on overseas accounts from over 50 countries, and once evasion has been detected they will look up the chain to see who facilitated it. If that person is associated with your company or partnership then your firm can be prosecuted.
The link does not have to be especially strong – an associated person can be an employee, agent or contractor – although they do have to be acting for your firm. The firm’s only defence is having preventative measures in place. It does not matter if the senior management were in the dark, and so measures must be embedded in procedures and communicated to everyone associated with your firm. Simply carrying out a risk assessment and putting it in a drawer will not protect your firm.
The scope of the rules is breathtakingly wide. There are two offences:
1. Evading UK tax
Even if your firm has no UK presence at all, it could still be prosecuted if you assist in evading a UK tax.
2. Evading foreign tax
If your firm has a person acting on its behalf in the UK, then if they facilitate foreign tax evasion when in the UK your firm could be prosecuted. However, the evasion must be a criminal offence in both the UK and the foreign country.
A successful prosecution could be very damaging for your business. Not only is there the prospect of an unlimited fine, but it could prevent you from winning government contracts or operating is regulated markets.
What should I do?
The first step is to identify a person or team responsible for implementing preventative measures. A risk assessment should then be carried out, evaluating business operations identifying associated persons. It may be that you consider your firm to be low risk, but it is important to document why you came to this conclusion. Procedures, for example due diligence and reporting, should be designed and implemented, and then communicated to all associated persons identified in the risk assessment. Finally, it is important to keep everything under review.
What if I identify tax evasion?
If you find out that a person associated with your firm has assisted with tax evasion, this should be reported. UK tax evasion is reported to HMRC, and overseas tax evasion to the Serious Fraud Office. This does not give immunity from prosecution – the only defence remains the procedures you have in place – but it forms part of your defence and could mitigate penalties if your firm is convicted.
Whilst the new regime only covers evasion which has taken place since 30 September 2017, this includes evasion which started before then but is still ongoing. It is therefore important to act now and get preventative measures in place. Senior management must be committed to the process, and create a positive culture in the firm.