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Haines Watts London Holborn Phone icon 0207 025 4650

We all know that carrying out tax evasion is a criminal offence, and something that any sensible business will not countenance.

But did you know that if your business fails to prevent the facilitation by your staff of tax evasion by another person, this is also a criminal offence – and one with a wide-ranging impact for your company.

For example, when an employee in your accounts department, or a person in your sales team, knowingly assists a supplier or customer to evade the correct taxes that are due, and your business did not have the procedures in place to stop that facilitation, your business will become liable to prosecution, penalties and all the associated negative brand impact that comes with any criminal investigation or ‘naming and shaming’ by HM Revenue & Customs (HMRC).

Neil Insull, Tax Partner at Haines Watts London, explains the potential impact of facilitating tax evasion, and the value of carrying out a thorough, watertight risk review.

 

What is tax evasion?

Failing to pay the correct tax is never, ever a good idea. And tax evasion – rather than tax avoidance, which meets the letter of law – is a criminal offence.

By evading tax, a person knowingly aims to evade the correct amount of tax, breaking the law in the process and committing an offence for which they can be prosecuted. When we refer to ‘facilitation of tax evasion’ we’re talking about a person acting on behalf of a company (employees would be the prime example) intentionally aiding and assisting customers or suppliers to carry out this evasion.

There are two key points here, when it comes to the importance of understanding the rules around facilitation:

  1. Any kind of tax evasion is a very serious issue – and will have significant implications for you, your employees and your business as a whole.
  2. The rules around facilitation of tax evasion affect every single business in the UK. This isn’t just something for large corporate organisations to think about.

 

The new offence: facilitation of tax evasion

The offences for the failure to prevent the facilitation of tax evasion were added in the Criminal Finances Act 2017 to crack down on deliberate and knowing facilitation of tax evasion by employees when advising or assisting that company’s customers.

The new legislation was a response to allegations that employees of banks and other large corporates in the financial services sector knowingly assisted their customers to evade paying UK income tax. With no way to prosecute the banks directly, this new piece of legislation allows HMRC and the UK Government to prosecute the employer – and tightens up the law around this kind of facilitation.

 

What industries could be most at risk?

Although the alleged facilitation of tax evasion by customers of banks was the catalyst to this new legislation, other industry sectors could equally be hit.

If you have employees who can direct when and how money is given to suppliers, or who enter into contracts and payment agreements with customers on their own behalf, without management supervision, there’s always the possibility for facilitation. It only takes one rogue employee to take a backhander, with minimal detection, and you’re then open to prosecution.

For example, you might own an art gallery business selling fine art where your employees advise customers. There is potential here for an employee to use a false invoicing method that allows an investor to evade paying VAT on the purchase of an artwork, or to evade paying the correct custom duty on importing/exporting the artwork.

Your employee has enabled this art buyer to purchase a piece from your gallery in a way that avoids the correct taxes. And unless your business has procedures to prevent such facilitation by your employee, your business will have committed a criminal offence.

 

The impact of facing a prosecution

This legislation has been around for over a year. But, in many cases, companies have done nothing about it – despite the fact that this legislation affects every incorporated UK business.

There’s the chance, however fanciful, that your business could face unlimited financial penalties, reprimands and prosecution if you don’t demonstrate that you have appropriate procedures in place to prevent this kind of facilitation.

So, how do you go about reducing this potential risk and ensuring your business is covered?

 

Reviewing the risk in your business

The key to reducing your risk is to know, at board and management level, whether you have the appropriate procedures in place to prevent facilitation of tax evasion.

It’s a key part of a director’s duties to assess the level of risk of employees having the opportunity to facilitate in another person’s tax evasion, and to have reasonable procedures in place to minimise that risk and reduce the threat of criminal prosecution of the business.

The Government wants all corporates to have prevention procedures in place to reduce the risk of the facilitation of tax evasion. And they’ve defined six principles to drive this:

  1. Risk assessment
  2. Proportionality of risk-based prevention
  3. Top-level commitment
  4. Due diligence
  5. Communication (and training)
  6. Monitoring and review

The minimum you should be doing is assessing the risks and putting in place a policy document that says you understand what the legislation is about, and that you’ve examined your procedures, customers and suppliers to assess whether your business is high or low risk.

 

How we can help with a risk review

Larger corporates will need to meet all of the six principles around facilitation. But for owner managers of smaller and perhaps less complex businesses, we can help you focus on the risk-assessment angle and advising on the procedures which are reasonable and appropriate to the level of risk in your particular business and your particular business sector.

When it comes to the potential for facilitation of tax evasion, we’ll:

  • Help you review and identify the potential areas of risk in your business
  • Assess your existing procedures and the overall risk level you’re facing
  • Work with you to tighten up your procedures and reduce your risks
  • Give you real comfort that your structure, processes and governance are fit for purpose.

 

Talk to us about a risk review

A risk review around facilitation of tax evasion is a relatively simple way for you to avoid prosecution, penalties and all the associated negative impact on your brand and sales etc.

Talk to one of our London Tax Advisors about getting a risk review for your business – and get the peace of mind you need as an owner manager.

Want to know more? Call us on 0207 025 4650 or email london@hwca.com

About the author

Neil Insull

Neil has over 25 years of tax experience, working in both practice and industry. He provides clear, commercial and logical tax advice to allow business owners, entrepreneurs and other key decision-makers to create, preserve and unlock value at all stages of the life of the business, from 'cradle to grave'. Neil specialises in helping business owners deliver tax effective and practical solutions on business transactions and, in particular, managing the complexities of personal and business tax profiles of all stakeholders.

 

If I wasn't doing this I'd be: a long distance haulage driver.

Favourite Sports Team: Leeds United.

Dream Location: Winter, Yorkshire Dales, the end of a long walk to a country pub with a beer in hand.

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