This week we look at guidance on self-reporting under the new offences of failing to prevent facilitation of tax evasion, and updated guidance on publishing slavery and human trafficking statements. We also look at the public censure of an AIM company and the FRC’s view on annual reports for 2017/2018.

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HMRC publishes self-reporting guidance for new tax offence

HM Revenue & Customs has published new guidance for organisations that are considering voluntarily self-reporting under the new offences of failure to prevent the facilitation of tax evasion in Part 3 of the Criminal Finances Act 2017.

On 30 September 2017, the two new corporate offences of failing to prevent the facilitation of UK tax evasion and failing to prevent the facilitation of foreign tax evasion came into force. A relevant organisation will be guilty of the offence if a person associated with it facilitates tax evasion, unless the organisation can show it had put reasonable prevention procedures in place.

As under the Bribery Act 2010, organisations may feel it is appropriate to self-report any potential breach of the new tax offences. There is no obligation to do so. The new guidance sets out:

  • how an organisation can do this
  • what steps to take before contacting HMRC, such as taking legal advice
  • what information a self-report should contain, including the details of the organisation making the self-report, whether tax is being evaded in the UK or abroad, whether the organisation has previously self-reported, and details of any prevention procedures the organisation has in place the consequences of self-reporting, namely that it will not always preclude a criminal investigation but may form part of the organisation’s defence and be reflected in any penalties imposed

Home Office publishes updated supply chain guidance

The Home Office has published an updated version of its practical guide to transparency in supply chains. The guide aims to help commercial organisations that are required to produce a slavery and human trafficking statement (a “statement”) under section 54 of the Modern Slavery Act 2015.

A commercial organisation’s statement must set out the steps it has taken in its previous financial year to eliminate slavery and human trafficking in its own business and its supply chains.

The new guide replaces the previous version of the guide published in 2015, which has now been removed from the Government’s website. The key changes to the guide are as follows:

  • The guide now recommends that smaller organisations which are not subject to section 54 (because their turnover falls below £36 million) consider publishing a statement “voluntarily”. This supplements the pre-existing recommendation that organisations whose turnover dips below £36 million continue to publish a statement, even though not legally required to do so.
  • Part 5 of the guide, which previously contained six illustrative examples of the kinds of information an organisation could include in a statement, has been strengthened. The guide now makes it clear that the Home Office expects organisations to cover all six of these items, as well as all other steps the organisation has taken in the financial year in question.
  • The guide notes that investors, the media and the public will expect to see “year-on-year” improvements in how commercial organisations are tackling slavery and human trafficking.
  • It is best practice for the director who signs an organisation’s statement also to sit on the board that approved the statement. This is a little odd, as the board of one organisation cannot approve another organisation’s statement. It is presumably intended to mean that the director signing the statement should be present at the board meeting at which the statement is approved.
  • The guide now recommends that the statement carry the date on which it was approved.
  • The guide now states that commercial organisations should keep their historic statements from previous financial years on their website, rather than just their current year’s. This helps clarify a point of uncertainty in section 54, which talks variously about “statements” and “a statement”.
  • The guide now includes an extensive definition of “child labour” and notes that an organisation’s slavery and human trafficking due diligence should form part of its wider human rights due diligence process, where possible.

LSE publicly censures AIM company

The London Stock Exchange (the “Exchange”) has issued a public censure of Management Resource Solutions plc (“MRS”), whose shares are admitted to trading on the Exchange’s AIM market.

The censure notes that, on 5 March 2015, MRS notified the market that it was proposing to acquire the D&M Group. The acquisition would have constituted a reverse takeover under the AIM Rules for Companies, and so MRS also published an admission document in accordance with AIM Rule 14.

As part of this, MRS announced it had entered into a debt facility to fund the acquisition. Before shareholder approval for the deal was obtained, certain MRS directors became aware that financing might not be forthcoming. They discussed the position with MRS’ lawyers and accountants in Australia, but they failed to inform MRS’ finance director or its nominated adviser (nomad).

On 27 March 2015, MRS announced that the final condition to the deal (the release of security over certain assets) was about to be met, but it did not disclose the uncertainty around the debt facility.

When the finance director ultimately found out, he informed MRS’ nomad. Trading in MRS’ shares was suspended on 8 April 2015. When it was restored on 15 June 2015, the share price fell by over 26%.

The Exchange decided that MRS had breached three separate AIM Rules:

  • Rule 10 – because it failed to disclose the potential financing difficulties in its market notifications.
  • Rule 31 – because it failed to keep its nomad informed of events and to seek its advice.
  • Rule 22 – because its board did not co-operate fully with the Exchange during its investigation.

The Exchange fined MRS £125,000, which includes a discount of £85,000 for early settlement. It also considers the breaches serious enough to warrant a public censure, noting that “compliance with the AIM disclosure obligations is essential for market confidence and failure to comply is unacceptable”.

The Exchange also noted that consulting other advisers is not a substitute for seeking advice from an AIM company’s nomad, given the nomad’s particular role in relation to the Exchange.

This is a reminder to AIM company directors to keep their nomad informed of all developments relating to their business. This is important not only to ensure the company obtains proper advice on whether to make a notification under AIM Rule 10 (as in this case), but also to ensure it fulfils its duty to announce any inside or price-sensitive information under AIM Rule 11 and/or the Market Abuse Regulation.

FRC publishes letter on 2017/18 annual reports

The Financial Reporting Council (FRC) has written an open letter to companies preparing their annual reports for their 2017/2018 financial year.

The letter encourages companies to concentrate on new reporting requirements under IFRS 9, 15 and 16 and the new non-narrative reporting regulations. The FRC is also hoping for improvements to companies’ long-term viability statements, dividend capacity reporting and defined benefit pension scheme reporting.