5 Steps to Avoid Facilitating Tax Evasion

Posted by

Lynne Callister

on 27 Apr 2022


Tax evasion? That's those off-shore guys? Your company has nothing to do with taxes other than payroll, so why would you worry about tax evasion?

5 Steps To Avoid Facilitating Tax Evasion

Well, because the law in the UK makes your company liable for 'failure to prevent' if any employee or associated person is found facilitating tax evasion... even if your company did not know of it! So, it's prudent to take a few preventative steps now rather than repent later.

Learn how tax evasion & avoidance differ

Businesses that fail to prevent tax evasion are liable

The Criminal Finances Bill 2016-17 introduced a range of new offences to crack down on financial crime. Included were two specific offences related to tax evasion.

Now companies can find themselves liable for failing to prevent the facilitation of tax evasion. In other words, professional advisors who help their clients evade tax could face fines of up to £5,000.

What's more, HM Revenue & Customs (HMRC) will not be shy in naming and shaming those companies involved. Companies face penalties of up to 200 per cent of the tax due under the Criminal Finances Act (2017).

The bill should come as no surprise. During her leadership campaign to pursue companies over tax avoidance, the UK Prime Minister at the time, Theresa May, stated:

“It doesn’t matter to me whether you’re Amazon, Google or Starbucks, you have a duty to put something back, you have a debt to fellow citizens and you have a responsibility to pay your taxes.”

The UK was one of the first countries to introduce this power. The Bill brought new criminal offences applying to all organisations, whether or not they are based in the UK.

The two new tax evasion offences are:

  • Failure to prevent the facilitation of UK tax evasion; and
  • Failure to prevent the facilitation of overseas tax evasion.

This means that a company will be held liable if one of its employees or contractors is proven to have aided and abetted a person in evading tax, even if the company didn't have any knowledge of the associated persons facilitating tax evasion.

These offences bear a resemblance to the corporate offence under the Bribery Act in that they are extraterritorial - they cover conduct that takes place anywhere in the world.

Since 2010, the government has introduced over 100 measures to tackle tax avoidance, evasion, and other forms of non-compliance, that secured and protected over £220 billion that would otherwise have gone unpaid. From 2018 to 2019, HMRC secured a record £34.1 billion in additional tax through activity tackling tax avoidance, evasion and non-compliance.

The clampdown was originally aimed at accountants, bankers and lawyers - who actively promote tax avoidance or evasion schemes - and their wealthy clients. However, in reality, the Act impacts a whole host of companies. For example, the video games industry has come under the spotlight.

Facilitating Tax Evasion E-learning Course

Your only defence is showing reasonable steps taken

Since the Paradise Papers and Panama Papers data leaks, governments worldwide have recouped over $1.2 billion, with hundreds of cases still underway.

The evidence shows that the risk for businesses is greater than ever. So, with this in mind, can you be sure you are doing everything in your power to prevent any form of tax evasion associated with your company?

After all, the penalties for companies if found guilty can be severe. They include unlimited fines, confiscation orders and serious crime prevention orders.

The only defence that a company has is to show that they have taken reasonable steps to prevent the facilitation of tax evasion.

So, if you are a business owner, it is vital that you and your employees understand what tax evasion is and be aware of how you could inadvertently aid tax evasion.

What are reasonable steps to take?

We have five simple steps to follow to help you show that your company is trying to avoid facilitating tax evasion.

Compliance step 1

Provide information and regular training to all staff

Your staff need to be clear on tax evasion rules and know what they must do to comply, including watching out for red flags, conducting due diligence checks, and raising any concerns promptly. And you must be able to demonstrate when your training was delivered, what the content was, whether employees understood the violations of the law and whether they made an attestation. For all these reasons, companies often do this training as e-learning - often choosing a provider like Skillcast!

Compliance step 2

Know who poses a high risk of tax evasion in your company

Entities with complex tax planning structures, difficulties establishing beneficial owners, customers with unsubstantiated sources of funds or wealth, and also companies based offshore in jurisdictions with high levels of secrecy all pose a higher risk. Tax advisory, legal and financial service firms are also considered high risk, as are companies offering private wealth management.

But every company runs the risk of aiding tax evasion, e.g. in the way you pay your suppliers, your consultants, your facilities management company, and how you help your clients. Recently, a former banker was fined € 500k and given a 12-month suspended prison sentence for helping wealthy clients hide € 1.6bn from tax authorities.

So, whether your company is in one of these high-risk businesses or not, it's good to conduct a risk assessment to identify the individuals who might risk tax evasion through their actions.

Free MLRO Responsibilities Checklist

Compliance step 3

Conduct third-party due diligence

This is especially important for third parties and customers to ensure you are not conducting business with anyone who may be involved in tax evasion. This should be proportionate to the level of risk faced. In short, the higher the level of risk, the more information or due diligence is required.

  • Develop criteria, monitoring and screening processes to check customer tax compliance status.
  • Remember that tax evasion doesn't just apply to companies or customers with links to offshore tax havens, e.g. non-US financial institutions are also obliged to check the tax status of US citizens under FATCA.
  • New international standards (the OECD's Common Reporting Standard) are designed to ensure tax transparency and help combat tax evasion.

Compliance step 4

Distinguish between tax evasion and tax avoidance

Tax evasion. Tax avoidance. One is legal. One isn't. Your company must know the difference.

Tax avoidance is when a person or company legally exploits the tax system to reduce tax liabilities, such as ISA investments or establishing an offshore company in a tax haven. Tax evasion is when a person or company escapes paying taxes illegally. Typically,  individuals or companies commit this illegal action by concealing the true state of their affairs from tax authorities.

Compliance step 5

Report any suspicions of tax evasion

Encourage your employees to report any knowledge or suspicion of tax evasion or other financial crimes via your company's whistle-blowing hotline or any other reporting channels you may have. If appropriate, you must have procedures to ensure that such reports are attended to promptly and passed on to the law enforcement authorities.

Whistleblowing Training Presentation

Want to learn more about Financial Crime?

To help you plan and execute compliance in your organisation, we have created a comprehensive anti-money laundry and counter-terrorist financing roadmap.

Our best-selling Compliance Essentials Library and award-winning LMS provide a one-stop compliance training solution, including financial crime e-learning.

And our searchable financial crime glossary explains key terms and regularly reports on learnings from the largest compliance fines resulting from regulatory breaches.

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Last but not least, you can interact in person with thought leaders and your peers at one of our popular live webinars and face-to-face events.

If you've any questions or concerns about compliance or e-learning, please get in touch.

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