A new criminal offence of corporate failure to prevent the facilitation of tax evasion came into force on 30 September 2017. Having reasonable prevention procedures in place is an organisation's only defence to the offence.
The aim of this new corporate criminal offence is to make organisations actively involved in preventing criminal tax evasion by implementing good corporate governance and strong reporting procedures.
What and who does the offence cover?
The offence is committed where a body corporate or partnership fails to prevent a person associated with it from facilitating tax evasion. It covers not only the evasion of UK tax but also evasion of foreign tax. It is not necessary for the body corporate or partnership to be incorporated or formed in the UK.
An associated person may be a legal or a natural person and includes any employee, agent or anyone else who performs services for and on behalf of the organisation when acting in that capacity.
An organisation will be liable for any breach unless it can show that it has put in place "reasonable procedures" to prevent tax evasion or that it was not reasonable in the circumstances to put such measures in place. This is similar to the offence of failing to prevent bribery in the Bribery Act 2010.
What are reasonable procedures?
In practice these will involve:
- conducting a risk assessment to identify tax evasion risks within the organisation;
- drafting and implementing effective but proportionate systems and controls to avoid those risks of tax evasion arising;
- raising awareness of those new systems and controls throughout the organisation, from the top down, but particularly focusing on those areas of highest risk;
- evaluating and auditing the effectiveness of systems and controls; and
- reviewing tax evasion risks regularly to ensure that systems and controls are comprehensive and effective.
HM Revenue and Customs (HMRC) has published guidance on the adoption of reasonable procedures.
HMRC has made it clear that it expects "rapid implementation" of reasonable procedures by organisations.