The UK Government introduced the Criminal Finances Act in 2017 to clamp down on tax evasion. Businesses are now criminally liable if an employee or associated person (an agent or another third-party facilitate tax evasion whilst providing services on their behalf.
Even if a company has no knowledge of its employee or associated person facilitating the tax evasion, they could still be held liable for 'failure to prevent'.
Although these offences are mainly aimed at accountants, bankers and lawyers who actively promote tax avoidance or evasion schemes, the bill impacts a whole host of companies. As a result, the only defence a company has against this is to show that they have taken reasonable steps to prevent the facilitation of tax evasion.
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.
After all, the penalties for companies if found guilty can be severe. They include, unlimited financial penalties, confiscation orders and serious crime prevention orders.
In a recent post, we looked at some recent cases and convictions for tax evasion in the UK. In 2018, a total of 3,809 tax evasion cases were recorded, and shockingly, a total of 671 people were convicted and handed jail sentences for their part.
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?
5 steps to ensure your company avoids facilitating tax evasion:
1. Know who poses a high risk of tax evasion
Entities with complex tax planning structures necessitating high levels of secrecy and payments received from unknown sources both pose a high risk. Tax advisory, legal and financial service firms are also considered high risk, as well as companies offering private wealth management.
2. Provide information and regular training to all staff
Your staff need to be clear on the rules of tax evasion and know what they must do to comply, including . A good way of doing this is to make it compulsory for your employees to complete an e-learning training course on tax evasion.
3. Conduct adequate due diligence and risk assessment
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.
4. Report it
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.
5. Make sure you and your employees can distinguish between tax evasion and tax avoidance
Tax evasion. Tax avoidance. One is legal. One isn't. It's crucial that your company knows the difference.
Tax avoidance is when a person or company legally exploits the tax system to reduce tax liabilities, such as, establishing an offshore company in a tax haven. Tax evasion is when a person or company escapes paying taxes illegally. This is typically done by concealing the true state of their affairs to tax authorities.
For a detailed account of the differences, read our previous blog post:
Editors note: This blog post was originally published in April 2017 and has since been updated with additional, relevant information.