CORPORATE CRIMINAL OFFENCE

What it is

The Corporate Criminal Offence (CCO) is new legislation under the Criminal Finances Act 2017, which will apply to the evasion of any tax (including indirect taxes) anywhere in the world. It places significant responsibility on individual businesses to ensure that they have processes in place to ensure the prevention of tax evasion committed on their behalf by their employees or by their employees facilitating their clients’ tax evasion.

The legislation is live, having come into effect on 30 September 2017.

There are two separate offences under the CCO legislation:

  • The facilitation of UK tax evasion by any businesses, wherever located,
  • The facilitation of non-UK tax evasion by businesses with a UK connection.

Therefore, all businesses are within scope and there is no de-minimis limit. Any business will have a strict liability under criminal law for failing to prevent the facilitation of tax evasion by one of its associates (i.e. employee, contractor or any person providing services for or on its behalf), even if the senior management was not involved in or aware of the facilitation of tax evasion.

Why has it come in

HMRC have previously struggled to attribute criminal liability to corporates when one of its employees/associates has facilitated tax evasion by a customer or supplier. They had to prove that a member of senior management knew about it.

Under the CCO, it is the corporate that is subject to prosecution without the need for prosecution of any individual.  This will make it easier for HMRC to impose sanctions and for corporates to avoid being caught by ‘protecting’ the board members from information.

The legislation is likely to be used in two ways.

Where a taxpayer has been caught evading tax, then the authorities will utilise this legislation to understand the role played by entities connected to the taxpayer and whether there is a systemic fault which should be punished.

Also we can expect to see ‘ad-hoc’ checks of corporate fraud prevention procedures by HMRC going forward.  If HMRC determine that they are not sufficient, they are likely to enquire further into your client base, and possibly your wider associates.

Who it will impact

CCO will impact all businesses both in the UK and the rest of the world. Business leaders need to understand how they will be affected and the steps they need to be taking to ensure they are protected.

It will have a significant impact on the financial services, accounting, tax advice and legal sectors. Accountants will specifically need to take care as they could become conflicted if HMRC insinuate that one of their clients has committed tax evasion. In these circumstances it is advisable for the investigation to be handled by an independent third party (hyperlink to tax enquiry page).

HMRC also want to push the onus onto large businesses to ensure that they have procedures in place to ensure, as far as possible, that their supply chain is tax compliant.

A successful prosecution could lead to an unlimited fine, public record of the conviction and significant reputational damage. The business’ only line of defence is that it had ‘reasonable prevention procedures’ in place or that it was not reasonable in the circumstances to expect there to be procedures in place.

At present, ‘reasonable’ has not been defined but it is largely accepted to mean that the corporate should:

  • Identify, catagorise and document the specific risks of facilitation of tax evasion,
  • Identify existing controls in place to manage those risks,
  • Put a plan in place to address any identified shortfall in procedure,
  • Communicate and train employees and relevant associates, and
  • Undertake ongoing monitoring and review

Standard ‘Know Your Client’ and AML checks are not sufficient.

HOW CAN LANCASTER KNOX HELP?

At Lancaster Knox our Tax Investigation specialists are industry recognised and dealt with hundreds of potentially contentious situations with HMRC over the years.  We are adept at managing interactions with the tax authorities to ensure that the process runs smoothly and that your interests are best protected.

Lancaster Knox will work with you (and your current adviser, if applicable) to ensure that HMRC do not seek to obtain information they are not entitled to, that any investigation process is as unobtrusive as possible and give you peace of mind that you are best protected against any suggestion of corporate complicity in a third party’s actions.

As part of our service offering, we can:

  • Undertake risk assessments around your prevention procedures
  • Provide training around what constitutes facilitating tax evasion and what you need to look out for
  • Assist with HMRC enquiries where you may be conflicted from representing your client
  • Assist with checks into your corporate fraud prevention procedures
  • Defend against any HMRC allegations of a criminal offence having been committed by the corporate.