RegulationLegalFailure to prevent tax evasion becomes criminal offence in Criminal Finances Act 2017

Failure to prevent tax evasion becomes criminal offence in Criminal Finances Act 2017

The legislation, expected to be implemented in September 2017, will make businesses liable for criminal acts committed by employees who encourage or assist tax evasion by other individuals

Legislation set to be introduced under the Criminal Finances Act 2017 will make businesses liable for criminal acts committed by employees who encourage or assist tax evasion by other individuals, e.g. customers or suppliers.

Under the new legislation, businesses will be liable even in cases where senior management were either uninvolved or unaware of the acts. These measures, expected to be implemented in September 2017, apply to UK and non-UK tax.

Law firm Pinsent Masons found that 76% of UK businesses were unaware of the new measures. When focusing on sectors of the economy particularly at risk of facilitating tax evasion, 58% of the financial services and accountancy sector, and 72% of the legal sector, were unaware of the changes.

Pinsent Masons, expressing “concern” about the lack of awareness, said that businesses needed time to make necessary changes before the implementation of the new laws in order to minimise the risk of criminal prosecution. It would be in the interest of businesses to put into place “reasonable prevention procedures”, according to the firm.

The firm said that in many cases criminal prosecution could “ruin” a business and thus inadvertent violations of these laws would be very costly. Businesses could suffer ramifications such as difficulty in winning government contracts in the UK and overseas or restrictions in operating in regulated markets.

Pinsent Masons said that large businesses were more likely to be caught out due to their complicated operating structures and high numbers of employees. Despite this, 67% of large businesses were unaware of these new laws.

Moving forward, Pinsent Masons said that boards of companies will need to take responsibility to ensure the implementation and regulation of robust policies and to communicate them across all levels of the company.

Jason Collins, head of tax at Pinsent Masons, said: “Businesses need to be aware of the raft of new tax evasion laws as the consequences for failing to comply could be extremely costly.

“The financial services, accounting and legal sectors are likely to be the most affected by the new legislation. These sectors will face the biggest challenges when it comes to carrying out risk assessments, and ensuring that adequate procedures are in place to prevent any potential facilitation of tax evasion.

“However other sectors are also at risk. One needs to make money to evade tax on it, and HMRC wants to make sure that large businesses are taking more notice of whether people who make money in their markets and supply chains are tax compliant.

“Businesses which pay large sums to consultants, do cross-border business, engage casual or itinerant labour and contractors, or handle goods and services where organised fraud is a risk are at high risk of falling foul of the new legislation.”

Speaking on the government’s tackling of economic crime, Collins said: “The Bill passed this week and, even with the upcoming election, it looks like the law will come into force this September. Regardless of who wins, it is unlikely that this offence would be dropped as it would be politically very unpopular to do so.

“Ensuring oversight will likely represent an added compliance burden for businesses. After the Bribery Act, this is the second example of the criminal law being developed to make companies responsible for what happens on their watch. The government is considering extending the law more widely with an offence of failing to prevent other forms of economic crime.”


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