By TOM ROSEFF, of Armstrong Watson

WHERE previously an ‘it’s not my problem’ approach to how associates conduct their own tax affairs may have been the norm, new legislation means you may be liable for aiding tax evasion if you fail to carry out the necessary checks.

The Criminal Finances Act (‘CFA’), which came into force in April 2017, provides HMRC with significant new powers to target businesses that facilitate tax evasion. The impact of this new legislation is however far reaching, and in practice will need to be considered carefully by all businesses.

Traditionally, it was extremely difficult to hold a company liable for the illegal acts of directors, employees or agents. However, among other measures, the CFA has introduced a new corporate criminal offence of the failure to prevent the facilitation of tax evasion. All companies and partnerships are within the scope of these measures regardless of size.

In simplistic terms, this means that businesses must demonstrate that they have taken reasonable measures to prevent the facilitation of tax evasion (in both the UK and any overseas jurisdictions) by its ‘associated persons’. It is noteworthy that an associated person is not restricted to the employees of a business but also includes suppliers, contractors, sub-contractors and intermediaries.

Unless firms can show that they had reasonable procedures in place, they would be guilty of an offence under the CFA and the implications can be serious. The CFA allows for both unlimited financial penalties and confiscation orders. Businesses also face the spectre of regulatory issues and reputational damage. As such, the key question for businesses is “what do reasonable procedures look like?”

Essentially, HMRC expects all businesses to have identified, documented and categorised the specific risks of facilitation of tax evasion that exist across their organisation. Businesses are then expected to have devised a plan to address each area of risk. Whilst for many businesses this may in practice be a relatively straightforward review, for others it could represent a significant exercise.

Given the potentially serious implications of breaching the CFA businesses should however take action now to ensure that they can demonstrate that appropriate steps have been taken to comply with their obligations under the new rules.

The experienced team at Armstrong Watson LLP are in a position to assist businesses in order to mitigate the risk of being non-compliant. To find out more in relation to the Criminal Finances Act and how we can assist your business please contact Tom Roseff (pictured above) on 01132 211362.