Failure to prevent tax evasion
You need to be aware of the new corporate criminal offences concerning a failure to prevent evasion of tax, which came into effect on 30 September 2017. These offences apply in respect of UK taxes, where the evasion is facilitated by any business located anywhere, and in respect of overseas taxes where the evasion is facilitated by a business with a UK connection.
The law can only apply to a company or a partnership, not to individuals. The business will be liable to be prosecuted if an employee or other associated person (such as an adviser) criminally facilitates tax evasion whilst acting in that capacity for the business. The facilitator of the tax evasion must do so knowingly, but falsifying dates on dividend documents, or claiming for non-deductible expenses, can be acts of tax evasion where the intention is to reduce the tax payable.
The main line of defence is for the business to have reasonable procedures in place to prevent the facilitation of tax evasion. An offence can be committed even if the senior management of the business weren’t involved or were not aware of what was going on.
The consequences of being prosecuted for failure to prevent tax evasion include: unlimited financial penalties, confiscation orders, serious crime prevention orders, regulatory issues and reputational damage. The company may also be prevented from bidding for Government contracts.
The types of businesses most at risk are those which pay large sums to consultants, do cross-border business, engage casual or itinerant labour and contractors, or handle goods and services where organised fraud is a risk. All company boards should discuss this issue to show and ensure that the company has written policies in place to counter fraudulent acts.