THE CIOT has warmed HMRC that its new corporate offence of failure to prevent the criminal facilitation of tax evasion may lead to a string of prosecutions in relatively small cases where civil penalties can already provide enough punishment.
The institute has called on HMRC to consider a delay to the 1 September 2017 introduction. It believes the deadline does not give HMRC enough time to respond to the concerns of tax practitioners, such as how the new criminal sanctions will sit alongside the civil penalties currently in place for corporate cases of tax avoidance, or about the need for clearer guidance on what practical steps businesses can take.
Guidance is still being formulated by HMRC and it will require a major effort by large companies to roll out new procedures worldwide.
The timetable was set before the EU Referendum and subsequent Brexit vote which has delayed government activity and created uncertainty in the business community.
The tax experts set out their concerns in response to a HMRC consultation on the new corporate criminal offence. The new offence aims to overcome the difficulties in attributing criminal liability to corporations for the criminal acts of those who act on their behalf.
Glyn Fullelove, chair of CIoT’s technical committee, said the institute supports the intention behind this legislation, which is to ensure that companies take measures to prevent their staff helping clients of the company evade.
“At the same time, we do not wish to see the serious nature of a criminal prosecution downgraded by prosecutions in relatively small cases that simply add an extra fine on top of civil penalties and are a long way distant from the behaviours that have spurred the introduction of the offence,” he said.
If criminal sanctions need to be strengthened in this area, the rule should only be applied in significant cases where large organisations have failed to take their obligations seriously,” Fullelove said.
“Prosecuting a small company for failing to prevent the evasion of, for example, a small amount of VAT, where the company can already be subject to heavy tax penalties, and where the staff who actually perpetrated the evasion can themselves be prosecuted, could be seen as one punishment too many for the small firm involved and is unlikely to affect the conduct of the management and the overseas staff of a major multinational bank,” he said.
The CIoT also told HMRC in its response to the consultation that the new offence must be subject to appropriate defences being available, that clear and unmistakable guidance must be provided by the government so that corporations understand exactly what measures they must put in place to comply.
The ATT had previously expressed concern that the legislation was overly complex and created unnecessary complications within the practical working of the new allowances
Introduced in 2013 to encourage R&D investment, the scheme allows UK businesses to pay only 10% corporation tax on profits derived from any UK or certain EU patents
APNs are issued to individuals and businesses who are suspected of having engaged in tax avoidance, and require full payment of the disputed tax within 90 days
Yet, KPMG’s annual survey shows that the UK is still an attractive place to do business, despite falling in rankings in tax competitiveness and FDI appeal