Article:

Corporate Criminal Offence – what you need to know

07 August 2017

The Act became law on 27 April and takes affect for all organisations from 30 September 2017.

The aim of the legislation is to overcome the difficulties in attributing criminal liability to corporates when their employees, contractors and other ‘associated persons’ are seen to be facilitating tax evasion by a customer or supplier. Under this legislation, it is the corporate that is subject to prosecution without the need for prosecution of any individual. HMRC intends that the legislation will bring about a “cultural change” in how prevention procedures over tax evasion are “embedded in the organisation”.


Who and what is affected?

The legislation affects all businesses (ie corporate bodies and partnerships) whatever their size or industry sector. For the hospitality sector where the following are often prevalent, taking action now to ensure sufficient controls and procedures are in place is critical:

  • Fluid, seasonal, transitional and often impermanent staff and personnel can prove a challenge for PAYE, NIC and other regulatory employment requirements.
  • Use of agency staff and/or third party contractors on a frequent basis.
  • Customer facing staff receiving cash tips and the appropriate operation of TIPS and TRONCS.


Crime and punishment

There are two offences under the act – a domestic offence and an overseas offence. The law sets out three stages to each offence:

  1. Criminal tax evasion by a taxpayer
  2. Criminal facilitation of this offence by an “associated person” – ie, a person acting on behalf of the corporation is guilty of knowingly aiding, abetting, counselling or procuring the tax evasion by a taxpayer
  3. The corporation failed to prevent its representative from committing the criminal act at Stage 2.

For the overseas offence, there must dual criminality at both the tax evasion and facilitation offences stages (1 and 2), ie the acts must be criminal offences both in the UK and the overseas jurisdiction.

Importantly, there does not need to be a conviction for either Stage 1 or Stage 2 for the third stage to be present.

A successful prosecution could lead to:

  • An unlimited fine
  • Public record of the conviction
  • Significant reputational damage and adverse publicity
  • Severe regulatory impact.
     

Defence

The key defence for any organisation is that it had reasonable procedures in place to prevent the Stage 2 action, or, that it was not reasonable for that organisation to have such procedures. In formulating a robust defence, the guidance issued by HMRC focusses on the following six key principles:

  1. Risk assessment
  2. Top level commitment
  3. Due diligence
  4. Proportionality of reasonable procedures
  5. Communication and training
  6. Monitoring and review


A pragmatic response

Organisations should aim to be ‘Day One’ compliant; although HMRC appreciates that what are accepted as reasonable procedures will develop over time. As a start by 30 September 2017, we recommend that you show you have:

  1. Identified the internal stakeholders with accountability and responsibilities for the legislation in your business. Is this head of Tax, head of Legal, risk teams or even supply chain?
  2. Undertaken a risk assessment to establish the extent of potential exposure.
  3. Implemented some quick wins, especially in relation to demonstrating top level commitment.
  4. Put in place a plan to implement further prevention procedures on a prioritised basis including due diligence procedures, introducing monitoring and review processes etc.

Some procedures, such as online training and changes in due diligence will take time to roll out. At a minimum, however, organisations need to assess their risk and establish a clear timeframe and implementation plan.

For further information on how we can help you manage this new risk please contact James Welch or James Egert. View our detailed guidance note.