Corporate Criminal Offence

Mark Ayre, Director, Tax Resolutions

Wide-ranging powers to assist HMRC in its ongoing fight against tax evasion were introduced in 2017. The legislation made it a crime for organisations that fail to implement procedures that prevent the facilitation of tax evasion by another party, such as a supplier, customer or contractor.

It became known as the Corporate Criminal Offence (CCO) and was designed to strengthen accountability and tax integrity across all organisations.

Could your organisation be affected?

The CCO legislation implemented strict rules, which automatically attribute criminal liability to any corporate entity that fails to prevent its employees, contractors or any associated persons from facilitating tax evasion carried out by another taxpayer, such as a client, customer or supplier.

The legislation covers all taxes and impacts all corporates, including partnerships and LLPs, irrespective of size or industry sector. Non-UK incorporated companies will also be caught if the tax evaded is UK tax. If found guilty, a business can face prosecution, an unlimited fine and of course, significant reputational damage.

How many prosecutions have there been?

Despite this powerful piece of legislation being in place for many years, HMRC has been criticised for failing to make any prosecutions. This fuelled the perception there was an extremely low risk of facing HMRC action under CCO. HMRC’s recent announcement about its first prosecution under the CCO regime will likely change this.

A UK accountancy firm based in Stockport has been charged in connection with an alleged R&D tax credit repayment fraud, with six individuals charged alongside the company for a range of different alleged offences. Furthermore, HMRC announced that it currently has 11 live CCO investigations, with a further 27 live opportunities currently under review. It has also reviewed and rejected an additional 121 opportunities.

Interestingly, HMRC states that the investigations and opportunities span all HMRC customer groups and cover 13 different business sectors, including software providers, accountancy & legal services, labour provision and transport. The department is clearly keen to emphasise that the CCO net can be cast wide and all businesses that are potentially caught by CCO need to ensure their affairs are in order.

HMRC’s announcement stated:

“In some cases, following investigation we have been satisfied with explanations provided and have not established deliberate facilitation - but those investigations have found other tax and regulatory offences that are being pursued."

What prevention measures can organisations put into place?

As explained in a previous insight: Failure to prevent the facilitation of tax evasion, a business can have a defence against a CCO charge, if it can demonstrate that it put in place suitable measures, procedures and safeguards to prevent the facilitation of tax evasion. However, this should not be taken to mean that a business can implement a set of procedures as a one-off ‘box-ticking’ exercise with no further action required – procedures should be regularly reviewed and updated where necessary.

HMRC’s recent action should act as a timely reminder that CCO is very much on HMRC’s radar and, while the numbers are far lower than they should be this long after being introduced, we expect to see more activity from HMRC in the near future.

If you require advice on how to reduce the risks of CCO applying to your organisation, please contact Mark Ayre or your usual Crowe contact.