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New criminal offences for failing to prevent the facilitation of tax evasion

Outline of new legislation

Under the Criminal Finances Act 2017 (CFA 2017), which came into force on 30 September 2017, the UK Government has introduced new legislation which will impact boardrooms of companies with a similar shock effect to that seen with the Bribery Act, Corporate Manslaughter offences and in an international context, reporting obligations like Sarbanes-Oxley in the USA.  It affects both UK-only companies and international groups with a presence in the UK and can require steps to be taken across the business – from supply-chain management to treasury/financial control functions.

The core change under the CFA 2017 is not to introduce new substantive taxation offences.  Instead it introduces a new corporate offence of failing to prevent the facilitation of tax evasion. This covers first party tax evasion (where the company can be held liable for employees fraudulently filing papers to under declare tax of the company or payroll taxes) and third party tax evasion (where the company can be held liable for the actions of its staff in assisting, for example customers, to evade tax).  In other words, the new offence does not radically alter what is already a criminal act, it is now far easier to prosecute by focusing on who is accountable for acts contrary to the current criminal law. It does this by focusing on the failure to prevent the crimes of those who act for or on behalf of an employer, rather than trying to attribute criminal acts to that employer.

The new offences do not require Board level knowledge for a corporate prosecution, but do allow a defence if the company can show it took appropriate steps to control staff and agents.

So how might this apply to employers?

From an employment perspective, a straightforward example of where the CFA 2017 would come into play would be where an employer hires in temporary staff from agencies or uses umbrella companies and does not check their credentials, especially if indications became apparent that those companies were not properly accounting for PAYE. Non-compliant agencies may be quoting client hire rates out of sync with competitors, or advertising unrealistic rates of take-home pay to contractors (eg “take home 90% of income”).

It is also possible for the CFA 2017 to apply in first party actions in relation to direct employees of the company. For example if there is a lack of oversight of severance payments made by employers to departing employees perhaps by way of a COT3 or a settlement agreement, where individual HR personnel cut corners by deliberately not making deductions for income tax and National Insurance contributions.  If the limited exemptions from tax at sections 401 to 403 of the Income Tax (Earnings and Pensions) Act 2003 don’t apply.

Likewise, in relation to any (direct or agency) employees employed overseas, employers must ensure that any payments made to employees are compliant with UK tax laws and that there is no attempt to evade tax that would otherwise be payable in the UK, regardless of whether or not the offence is committed overseas.

So what should employers do now?

It is now more essential than ever for employers to demonstrate a commitment to the prevention of such offences by engendering a culture within the business in which any activity to facilitate tax evasion is never acceptable. It is expected that banking and other professional services firms will now be subject to far greater scrutiny following the introduction of the CFA 2017, although sector specific guidance is anticipated.

DWF can advise on the steps employers can take in the risk assessment and due diligence process and the formal policy and contract precedent changes relating to the CFA 2017.

For more information please Get in Touch

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Legal news, views, trends and tools for HR Professionals. Stay ahead. Go further