As HMRC clamps down on some UK companies who have failed to prevent the facilitation of tax evasion by an associated person, this acts as a timely reminder that businesses, regardless of size, need to evaluate and respond to their risk exposure. Allan Maund, Head of Risk and Compliance at Dains Accountants comments

Businesses are now facing the prospect of Crown Court proceedings for failing to prevent the facilitation of tax evasion by associated persons. The associated persons who have facilitated the tax evasion face the same prospect, the Crown Court.

The 2017 Criminal Finance Act introduced two new offences for tax evasion – one where a business fails to prevent an associated person facilitating tax evasion in the UK and the other for a similar offence where tax is evaded overseas.

Businesses need more than ever to be risk aware of the impact of Criminal Finance Act and not to bury their heads in the sand. Turning a blind eye provides no defence in law.

The Six Guiding Principles

There are six guiding principles where applied could provide a statutory defence for a business where it is deemed to have fallen foul of the new tax evasion offences.

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Although the implementation of the six guiding principles are not a legal requirement, HMRC advises their adoption. That is a significant hint by HMRC.

The six guiding principles include a risk assessment, proportional risk-based prevention procedures, top level commitment, due diligence, communication and monitoring and review.

While these are self-policed and there is no review body, businesses which apply and evidence the application and a risk-based approach to the six guiding principles are likely to be at a considerable advantage in contrast to those who have partially implemented the principles. Those businesses that have failed to implement any of the six guiding principles are potentially massively exposed.

For those where criminal proceedings follow and the business is found guilty, there is the daunting prospect of an unlimited fine. However, often overlooked in cases of this type, and this includes other financial crime prosecutions, is the reputational damage to a business. There is no happy ending.

At Dains, we undertake a criminal finance risk assessment with businesses to understand their exposures. We review the findings of the risk-based assessment before planning a programme of activities to address the five remaining guiding principles.

Our aim is to make sure the business addresses its tax evasion risks and should an associated person facilitate the evasion of tax, the business is able to evidence the six guiding principles and ultimately provide a statutory defence where criminal proceedings is being considered.