In September 2017, the government introduced the Corporate Criminal Offence (CCO) under the Criminal Finances Act 2017, making it a crime for organisations to fail to implement procedures that prevent the facilitation of tax evasion, and to strengthen tax integrity across all organisations.
The legislation surrounding the CCO is broad – it automatically attributes criminal liability to any corporate entity when its employees, contractors or any associated persons are seen to be facilitating tax evasion by a taxpayer, for example a client, customer or supplier. There are no exceptions to the rule; all taxes and all corporates, including partnerships and LLPs, irrespective of size or industry sector are impacted. Non-UK companies will also be caught if the tax evaded is UK tax.
As of October 2020, HMRC has 31 potential CCO cases under review, with charging decisions still to be made. These span 10 different sectors, from small businesses through to some of the UK’s largest organisations.
It was a relatively slow start for HMRC with an initial lack of awareness amongst corporate entities - a survey carried out by HMRC over a year after the new rules came in found only 24% of respondents had assessed their risk and most did not have the risks formally documented. HMRC sought to address this in the following months as noted below. HMRC’s guidance also stresses the need for organisations to assess the risk of being exposed to the facilitation of tax evasion by those providing services on their behalf.
Regulated businesses such as law firms also face additional scrutiny and possible further sanctions from their regulatory body, as well as consequent reputational damage.
An organisation can plead a defence that it has put in place measures, procedures and
safeguards to prevent such facilitation of tax evasion. Prevention procedures must be reasonable and it
may be, for example, that for a particular situation it was reasonable to expect the organisation to have no such procedures in place. Specific facts and circumstances must always be taken into account.
HMRC regards the following as examples of reasonable steps to prevent the facilitation of tax evasion.
Step 1 is fundamental – An assessment of the potential exposure to the risk of any employees or associated persons engaging in activity, which could help facilitate tax evasion, plays an important role in demonstrating to HMRC that the company has actively sought to put reasonable prevention procedures in place.
The risk assessment:
Organisations should take steps immediately to ensure that their processes and controls are robust.
There is real potential for organisations to incur criminal liability in relation to the activities of ‘associated’ persons, which may include contractors over whom they have relatively little control.
Organisations need to consider all the scenarios where a breach could occur. Some practical examples of this are mentioned below.
We have created a new online tool that will allow you to quickly provide a basic assessment of your organisation’s intrinsic level of risk and vulnerability to prosecution for the Corporate Criminal Offence.
Using your answers to a number of questions, a score is generated giving an indication of the level of risk and potential actions you can take to mitigate these risks. You will then receive a PDF of the outputs to take away and consider.
Our specialists have a detailed understanding of the Corporate Criminal Offence, how to use the tool effectively, and how to help you understand and manage your results.
We can provide:
Start the scorecard