On 30 September 2017, the Criminal Finances Act 2017 (CFA) came into effect, introducing new criminal offences concerning the failure to prevent the facilitation of criminal tax evasion.
Essentially, the new law can be used to hold UK companies and partnerships to account if they have failed to prevent the facilitation of criminal tax evasion by an "associated person" (this can include an employee, agent, contractor, or anyone performing services for them), unless they can demonstrate that they took reasonable steps to prevent it from happening.
There are three main elements to the offence:
- Stage one: there must have been criminal tax evasion by a taxpayer (this can be either an individual or a legal entity). It doesn't matter whether the evasion involved UK or non-UK tax, but if non-UK tax is involved then the evasion must be a crime under both the relevant foreign law and the UK law;
- Stage two: an associated person knowingly and deliberately facilitated the tax evasion, in the course of being an associated person; and
- Stage three: the relevant corporate body failed to prevent their associated person from committing the facilitation.
What does this mean for employers?
The new offences carry a low burden of proof for prosecutors, and the penalties available include criminal conviction, unlimited fines and the confiscation of a business's assets. As such, businesses will want to ensure that they understand these new offences and have measures in place to protect themselves.
Organisations will have a defence if they have implemented procedures aimed at preventing tax evasion by their staff. However, the Government has made it clear that businesses should be implementing these plans as we speak, so those who haven't got any procedures in place will need to act fast as there is no transitional period.
The procedures implemented could include the use of risk assessments and fraud prevention policies that apply to agents and sub-contractors as well as employees. It could also involve putting preventative measures in place in overseas offices, if they are at risk of facilitating tax fraud.
This might also be a good time for HR teams to run updated training sessions on preventing tax evasion for staff involved in 'at risk' activities, and to ensure that appropriate and up-to-date whistleblowing procedures are in place to allow improper behaviours to be reported. The extent of any training/procedures implemented will, to some extent, depend on the level of risk in question and the size of the organisaiton, but being a small employer will by no means let an organisation off the hook entirely.
In light of the new offences, businesses also need be more careful than ever not to frame taxable payments as ex-gratia payments in settlement agreements. This would almost certain be seen as the facilitation of tax evasion and, as such, would be caught by the CFA.