On 25 August 2020, HMRC confirmed that there are now 10 ongoing investigations concerning the corporate criminal offence of "failure to prevent the facilitation of tax evasion (CCO) (see here). This follows HMRC’s previous update on the matter in February 2020 (see here). While this indicates that HMRC have only opened one new investigation since December 2019, a further 22 “live opportunities” are currently under review, which marks a significant increase in activity during the course of this year.
This brings the total number of live CCO investigations and opportunities to 32. It is clear from this that, despite the impact of Covid-19 on resources, HMRC is nonetheless continuing to increase scrutiny through the CCO in its pursuit of corporate criminal tax evasion offences
Updates on HMRC activity
Overall, the investigations and opportunities to date continue to span a wide variety of 10 different business sectors. These include businesses in the oil, software, construction and labour provision industries. Notably however, 12 of the 32 investigations and opportunities specifically relate to financial services, indicating an emerging trend in which HMRC sees financial services as a high risk industry for tax evasion facilitation.
The investigations and opportunities also continue to cover all HMRC customer groups, with HMRC scrutinising some of the UK’s largest organisations down to small businesses. While there are still yet to be any confirmed CCO cases to date, these new opportunities indicate HMRC is continuing to actively pursue ongoing and new enquires across a wide spread of industries and organisations.
Refresher on offence and action for companies to take
As a reminder, the CCO was introduced in 2017 and companies will be criminally liable if they fail to take reasonable steps to prevent an employee or other associated person (i.e. a third party performing services for or on their behalf) from facilitating tax evasion (which may be UK or overseas tax evasion). Companies found to have committed the offence can face unlimited financial penalties and other ancillary orders such as confiscation orders and serious crime prevention orders. Committing the offence will also expose companies to reputational damage, (which can impose restrictions on a company's business dealings).
Companies do have a full defence available, which will apply if the company can prove it had in place "reasonable" procedures designed to prevent its associated persons from facilitating tax evasion.
This update by HMRC is an important reminder that the CCO has not fallen off HMRC’s radar as a result of Covid-19. Companies should review whether they do indeed have reasonable procedures in place and, if not, take immediate action to address this, including conducting a CCO risk assessment; rolling out relevant CCO training to management and appropriate employees; and providing new or updated policies and procedures relating to the offence.
A fuller overview of the CCO offences and appropriate steps to take can be found in our previous client alert, which can be accessed here.
Watch our webinar
Members of the Baker McKenzie CCO team, partners Jennifer Revis, Charles Thomson and Jessica Eden, recently ran a CCO update webinar in June covering:
- A reminder of the offence;
- An update on typical “real life” consequential examples from the current global pandemic and economic downturn, including (among others) new enforcement trends emerging from HMRC; and
- A heads-up on the associated compliance requirements that will likely be ‘hot issues’ for enforcement this year.
This offence requires practical and strategic considerations that go beyond just tax principles. This webinar therefore remains essential viewing for those in tax, legal and compliance functions.
This webinar can be accessed in the previous client alert by clicking here.