The new tax evasion laws are coming…here’s what businesses need to know

Proposed changes to current tax evasion laws aren’t set to take effect until two months’ time, however, it would appear HMRC is already stepping up its criminal investigations into corporate companies.

From September this year, failure to prevent tax evasion will become a criminal offence, as part of new legislation that is set to be implemented under The Criminal Finances Act 2017. 

In this article, David Gillies, Tax Partner, explores what these new measures mean for businesses, which have already seen HMRC publicise a number of criminal investigations into several high-profile companies.

Two months ago, The Criminal Finances Act 2017 was given Royal Assent. Within Part 3 of the Act, two new Corporate Criminal Offence provisions were created, one that applies to UK taxes and the other, foreign tax evasion offences.

These new tax offences, which apply to UK and non-UK tax (where there is a UK element), have attracted widespread publicity, not just because they carry major repercussions for businesses, but because they represent a huge change in strategy for the first time in ten years.

Making tax evasion prosecution easier

Essentially, the new measures are designed to make it easier for HMRC to prosecute companies and partnerships for tax evasion. More specifically, businesses will be liable:

  1. For criminal acts committed by employees, who encourage or assist tax evasion carried out by other individuals, such as customers and suppliers and;
  2. Even if senior management were not involved or were unaware of the activity.

While it’s widely reported that the financial and professional sectors and larger corporate companies are at greatest risk of being penalised by the new legislation, all businesses, regardless of the industry in which they operate are being advised to pay close attention to it. Key questions businesses might want to ask themselves right now include, ‘Are we prepared for a tax evasion investigation from HMRC?’ and ‘What measures, systems or procedures do we have in place to defend ourselves?’

‘Reasonable procedures’

Unfortunately, not all companies will fully tune into the new legislation until it directly impacts them. However, what many don’t realise is that this could actually jeopardise their own defence if they were to be investigated by HMRC, who only have to hold a suspicion in order to start taking action. In all cases, the only acceptable defence that can be presented by organisations is having ‘reasonable procedures’ in place. Failure to evidence such procedures can result in criminal prosecution and unlimited financial penalties.

According to guidance published by HMRC, ‘reasonable procedures’ include measures ranging from risk assessments and due diligence to communication and top-level commitment. (To see the draft guidance in full, click here).

We’re on the cusp of seeing one of the biggest shake-ups in tax evasion law. In just a matter of weeks, the actions of just one individual could see entire organisations being investigated for tax evasion and facilitators will be viewed in the same light as tax evaders. While there’s no way of knowing which companies will be investigated going forward, it is possible to make sure you’re prepared by making sure you have the right processes, or ‘reasonable procedures’, in place.

If you have any questions or want to find out more about the implications of the Corporate Criminal Offence provisions for your business, contact our tax specialists on 01905 777600 or mail@ormerodrutter.co.uk.


DSC4366About the Author

David Gillies specialises in private client tax, advising on personal tax with an emphasis on inheritance tax planning, trusts, tax efficient structuring for property portfolios and residence and domicile status. He has worked for “big 4” firms as well as smaller practices.


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