The Criminal Finances Act 2017 took effect on 30 September 2017. It makes companies and partnerships, a ‘relevant body’, criminally liable if they fail to prevent the facilitation of tax evasion being carried out by an employee, anyone acting on their behalf or someone acting as an agent. If found guilty, the business could face unlimited fines and potentially further consequential sanctions within their industry or profession.
This Act has the effect of creating an offence at corporate and partnership level which does not require the directors/partners to have had any knowledge of the offence in question. Broadly, the offence is the failure to prevent the crimes of those who act for or on behalf of the corporate body or partnership instead of the need to attribute criminal acts to that body.
For a firm to be criminally liable under the new Act, there are three elements of the offence:
- There must be the execution of a criminal act of tax evasion.
- The crime must have been facilitated or carried out by a person associated with a relevant body.
- The relevant body failed to initiate adequate prevention procedures in relation to the act carried out by the associated person.
A defence is available when it can be shown that ‘reasonable prevention procedures’ were in place to prevent the associated person from committing or facilitating the crime; or that it would have been unreasonable or disproportionate to expect such procedures to be in place.
The government advises that any reasonable prevention procedures should be based on six guiding principles:
- Risk assessment – the relevant body should assess the nature and extent of its exposure to the risk of an associated person committing a criminal act;
- Proportionality – the procedures should take into account the nature, scale and complexity of the relevant body’s activities;
- Top level commitment – the management of the relevant body should be committed to preventing illegal acts and should foster a culture that tax evasion and its facilitation is never acceptable;
- Due Diligence – with appropriate procedures put in place with respect to all people who perform services for the relevant body;
- Communication – training staff and ensuring the message effectively gets across to all employees and agents;
- Monitoring and reviewing – ensuring that whatever procedures are put into place are regularly reviewed and updated and amended where necessary.
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Internet link: GOV.UK Tackling tax evasion corporate-offence
The government will consult on plans to introduce a new strict liability criminal offence for individuals who hide their money offshore.
HMRC would no longer need to prove that individuals who have undeclared income offshore intended to evade tax, in order for the offence to be a criminal conviction.
Currently HMRC have to demonstrate that even when someone failed to declare offshore income that the individual intended to evade tax. This change will mean HMRC only has to demonstrate the income was taxable and undeclared meaning it will be easier to secure successful prosecutions of offshore tax evaders.
As well as introducing the new criminal offence, the government will consult on a range of options building on the existing penalties to make sure they act as a clear and effective deterrent.
Chancellor of the Exchequer, George Osborne, said:
‘The government has taken significant steps to clamp down on those hiding their money offshore. HMRC has brought in over £1.5billion over the last two years and, through our leadership at the G8, we have taken significant steps towards greater transparency and tax information sharing.
But there can be no let up and we will continue to pursue offshore tax evaders. Those who continue to believe they can hide wealth offshore should know that there is no safe haven and that serious consequences await them.’
Internet link: News
In a high profile decision HMRC has won a case in which the Icebreaker partnership schemes were shut down, after the tribunal ruled it was set up to shelter more than £120m in tax.
The wealthy members of the scheme, which included Gary Barlow and two of his former Take That band mates, claimed to be active partners trading in the creative industries, selling, for example, the rights to a song or an idea for a book. They claimed tax relief on greater losses than they invested in the partnerships. The return on the partners’ ‘investment’ was the tax relief, which was considerably larger than their cash contribution.
A HMRC spokesperson said:
‘HMRC has put in place generous reliefs to support genuine business investment and our tax reliefs for the creative industries work well, enabling the UK’s world-class film, television and video production companies to compete on the global stage.
But we will not tolerate abuse of the system by people trying to dodge their tax obligations. HMRC will continue to challenge in the courts and anyone who engages in tax avoidance schemes risk not only the high cost of these schemes but also lay themselves open to penalties and, potentially, prosecution.’
The scheme was rejected by a First-tier Tribunal.
Internet links: NewsTribunal
HMRC have announced that for the first time they now have access to information on all credit and debit card payments to UK businesses. HMRC intend to use this information to aid them in a new crackdown on tax evasion.
Under new powers introduced from 1 September, HMRC can now access information from ‘merchant acquirers’ which are the companies that process card payment transactions. HMRC will use the information to determine the amount and value of transactions completed by a specific trader.
HMRC do not have access to personal data identifying the card owners or card numbers but this data will be used to ensure that traders have correctly accounted for all taxes due.
HMRC estimate that this information could reduce fraud by over £50 million a year.
Exchequer Secretary to the Treasury David Gauke said:
‘Tax evasion and the hidden economy cost the taxpayer £9 billion a year. While the majority of traders are honest, they may find themselves undercut by the minority who seek to lower prices by cheating the tax system.’
‘The Government has given HMRC nearly £1 billion to tackle fraud and evasion, and these new powers give HMRC an extra tool to ensure a level playing field between businesses, and also reducing opportunities for those who try and cheat the system.’
Internet link: News