Please Put Proper Prevention Procedures in Place Promptly.

On 30 September 2017, a new corporate criminal offence of failure to prevent facilitation of tax evasion (whether in the UK or overseas) comes into force. This new offence under the Criminal Finance Act 2017 has been modelled on the anti-bribery legislation. Unless companies and partnerships (whether UK based or foreign businesses with a UK office) can show that they had put in place reasonable “prevention procedures”, they may be held liable for the acts of their staff, agents or other individuals associated with them.

It is therefore essential to put effective anti-evasion policies and systems in place as soon as possible. The Government has published guidance referring to six principles which will be very familiar to those who have been involved in setting up and maintaining anti-bribery procedures. As you might expect, the first principle is that of risk assessment, leading on to the implementation of proportionate risk-based prevention procedures. All parts of a business should therefore assess the potential risks of being involved in the criminal offence of tax evasion. Once this has been done, the detail and extent of the relevant prevention procedure should be proportionate to the level of risk established.

The other four principles are top level commitment, due diligence, communication (including training), and monitoring and review.

When assessing the potential risks, there are a number of obvious areas of concern in the area of human resources, some of which we encounter on a reasonably regular basis. These include:

An employer which is party to a settlement agreement asking the lawyer advising the employee to address their bill directly to the employer, rather than having it simply marked payable by them – as no services will have been provided by the lawyer to the employer, this would amount to VAT fraud where VAT is payable
An employer exercising a contractual payment in lieu of notice clause, but paying the relevant employee without deductions of tax and national insurance (this is due to be extended to any payment in lieu of notice at some time in the future)
An employer rolling a contractual bonus or payment in lieu of holiday on termination into a gross compensation payment up to £30,000 – all contractual sums must be taxed appropriately
Businesses purportedly contracting with individuals on a self-employed basis where there is no doubt that the individuals are in fact “employed” for tax purposes (even if only a worker for employment law purposes) and thus depriving HMRC of the correct payments for tax or national insurance
At Mundays, we have already put a new Tax Evasion Facilitation Prevention Policy in place and all our staff will be required to attend an online training course. The issue will also be discussed at departmental meetings.

As with anti-bribery and data protection, a breach of the legislation won’t just result in potential fines, but could cause significant reputational damage to your organisation. It may not happen to you, but can you afford to take that risk?


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