2017 saw the introduction of the Criminal Finances Act 2017 (CFA 2017) which makes companies and partnerships criminally liable if they fail to prevent ‘associated persons’ from facilitating tax evasion. In its simplest form, tax evasion occurs where an individual or a company avoids its tax liability by, for example, deliberately failing to declare income or by falsifying expenses. It is therefore any offence which cheats the public purse out of revenue.

The scope of the CFA 2017 is widereaching and is something which all companies need to be aware of as liability can extend to situations where the company itself was not involved in the tax evasion or where it was not even aware it was taking place. Liability, therefore, essentially arises by way of association and it may be easy for a company to be unwittingly caught by the provisions of the Act and face severe sanctions as a result which include a conviction and unlimited fines.

Who are ‘Associated Persons’?

A company commits an offence if:

  • a person commits a UK tax evasion facilitation offence
  • that person commits the offence in the capacity of a person associated with the company

For these purposes, a person associated with the company includes:

  • an employee, acting in the course of their employment with the company
  • an agent, acting in their capacity as an agent for the company
  • any person who performs services in their capacity as a service provider for the company

Offence not limited to UK tax evasion

The scope of the Criminal Finances Act also extends to foreign tax evasion and a company is guilty of an offence if an ‘associated person’ commits a foreign tax evasion offence being conduct which:

  • amounts to an offence under the law of a foreign country
  • relates to a breach of a duty to a tax imposed under the law of that country
  • would be regarded by UK courts as amounting to knowingly being concerned in, or in taking steps with a view to, tax evasion


The sole defence for both the UK and foreign tax evasion offence is for a company to show that it had ‘reasonable procedures’ in place to prevent the facilitation of tax evasion or that it was reasonable, in the circumstances, not to have any such procedures in place. Obviously the next question is, what is meant by ‘reasonable procedures’?

What steps should a company be taking?

The scope of the CFA 2017 is therefore wide and a company can be caught in any number of ways. Companies must therefore ensure that they have strong and effective policies and systems in place.

HMRC have published six key principles which companies should consider and following this guidance when implementing policies would put a company in a good position to then rely on the ‘reasonable procedures’ defence.

The six key principles are set out below along with some suggestions for steps which a company could take to protect itself:

  1. Risk assessment – assess the nature and extent of exposure. What business is carried out? What markets does the company operate in and what risks do these present? Is the company involved in a specific sector or transactions which give rise to higher risks of tax evasion? The company must put itself in the position of its employees, agents and suppliers – do they have a motive to facilitate tax evasion along with the opportunity and the means? It is important to document this risk assessment and keep it under review.
  2. Proportionality of risk-based prevention procedures – reasonable prevention procedures should be proportionate to the risks a company faces highlighted by the risk assessment process. Does the size of the company, along with the nature and complexity of the business, justify the prevention procedures being put in place? Is more required to be done? Do the prevention procedures satisfy the risks identified?
  3. Top level commitment – senior management should be fully committed to the prevention of tax evasion and in implementing the procedures put in place. Formal statements from senior managers could be published to express a zero tolerance stance on the facilitation of tax evasion, confirming what the company’s prevention procedures are and highlighting the ramifications for anyone not adhering to the prevention procedures.
  4. Due diligence – apply due diligence procedures, taking an appropriate and risk-based approach, in respect of persons who perform services on behalf of the company, in order to mitigate risks which have been identified. Do specific parts of the company need to be scrutinised due to an increased risk of tax evasion? Do old procedures need to be updated which may have been tailored to a different type of risk?
  5. Communication – communicate the prevention procedures throughout the company and ensure that employees understand what is expected of them. An internal training programme could be rolled out focusing on the key themes to be supplemented by a staff handbook and formal tax evasion policy. Establish a means by which representatives of an organisation can communicate in confidence in order to raise concerns and establish a nominated representative as the first port of call to deal with questions or concerns. External communication of prevention procedures is also important as this could act as a deterrent for those who may seek to use the company as a vehicle for tax evasion.
  6. Monitoring and review – keep the prevention procedures under review and make improvements where necessary. Has the business or the market in which the company operates changed in any way? Do the procedures need to be updated as a result? Have the procedures been followed, have they been successful or do they need to be updated?

Tax evasion is a particularly hot topic at the moment following the publication of the Paradise Papers in 2017 and the seemingly extensive use of offshore investment funds. With the new Criminal Finances Act 2017 also recently coming into force, the practices and procedures of UK companies are likely to be under increased scrutiny – both at home and abroad – to ensure that they are assisting in the fight against tax evasion.