Tax & admin · 25 September 2017

Small businesses urged to prepare for imminent tax evasion legislation

The Criminal Finances Act places further responsibility on businesses to prevent tax evasion from associated partners
The Criminal Finances Act places further responsibility on businesses to prevent tax evasion from associated partners

Small UK business owners have just days to start complying with strict new rules designed to combat tax evasion, with leading law firms outlining where preparations should begin.

On 30 September, the Criminal Finances Act 2017 will be enacted to give HMRC powers to pursue possible facilitation of tax evasion anywhere in the world, if it involves a UK tax liability.

The act will create new corporate offences for the “failure to prevent the criminal facilitation of tax evasion” by a third party acting for a business.

Read more: HMRC targets small businesses in tax avoidance crackdown

According to legal firm Blake Morgan, the term “associated persons” refers to employees, agents and joint venture partners, as well as anybody providing the business with a service.

Business owners convicted under the act will face unlimited fines as well as the reputational damage of a corporate offence, Blake Morgan has warned.

To protect themselves, business owners have been advised to identify each area of risk, and consider steps to mitigate the facilitation of tax evasion.

Outlining the importance of the act, Simon Stokes, a partner at Blake Morgan, said: “Organisations should know that they will be liable under this new offence if any associated person criminally facilitates the evasion of tax while acting for them – unless the organisation  can prove it had reasonable prevention procedures in place where required.

“Having proper procedures in place that identify and mitigate tax evasion facilitation risks will significantly reduce the risk of prosecution, and ought to provide a good defence if required.”

Under the legislation, businesses are required to perform active risk assessments, rather than issuing a statement clearing it of responsibility.

“Organisations will also need to consider whether they should provide training on the Act for relevant staff, and what measures they have in place to monitor their continued compliance with the Act,” Stokes added.

With just days remaining before the legalisation is enacted, Stokes urged decision makers to seek advice on “conducting risk assessments, drafting policies and procedures, and placing relevant clauses in contracts with employees, suppliers and others associated with your business or organisation”.

Offering further clarity, Marie Barber, managing director in the Regulatory Tax Advisory team of Duff & Phelps, said the act represented a continuation of government intervention into corporate behaviour, following the Bribery Act and new GDPR rules.

“HMRC appreciate the tight timeframe and do not expect 100 per cent compliance by 30 September, but it does expect businesses to have performed the risk assessment and have the policy and procedure process well underway,” Barber said.

“The Criminal Finances Act is extremely far-reaching and will put the spotlight on a huge range of businesses, meaning many people have a lot of work to do in less than a month to ensure compliance.”

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ABOUT THE EXPERT

Simon Caldwell is a reporter for Business Advice. He has a BA in politics and communications from the University of Liverpool, and previously worked as a content editor in the ecommerce industry.

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