The Corporate Criminal Offence

With effect from 30 September 2017, The Criminal Finances Act 2017 imposes a strict liability Corporate Criminal Offence (CCO) where a corporate or partnership itself fails to prevent the facilitation of UK or foreign tax evasion. Failure to comply with the legislation may result in unlimited fines.

What is the legislation about?

The legislation provides that companies and partnerships may be criminally liable where they fail to prevent an associated person (for example, suppliers, employees, off payroll contractors and anyone providing services for/on behalf of the relevant body) from facilitating tax evasion.

The offences are ‘strict liability’ offences, meaning that intention is irrelevant. To have a statutory defence in respect of this legislation, companies and partnerships must either:

(1)   be able to evidence the consideration and implementation of reasonable and proportionate prevention procedures i.e. procedures designed specifically to prevent associated persons from committing tax evasion

(2)   be able to demonstrate that it was unnecessary for them to have implemented reasonable and proportionate prevention procedures.

Who does the legislation apply to?

The legislation applies to corporate entities and partnerships irrespective of their size or the industry in which they operate. It also applies to incorporated charities.

Where UK tax evasion takes place, the legislation applies to companies and partnerships irrespective of the jurisdiction in which they are established.

Where foreign tax evasion takes place, the legislation is applicable to all UK incorporated companies and partnerships and foreign entities with a UK nexus and/or if the act of facilitation has taken place in the UK.

From what date does it apply?

The Criminal Finances Act 2017 rules took effect from 30 September 2017. Until a time where a relevant entity undertakes a risk assessment, and implements reasonable prevention procedures, it has little or no defence with regards to a potential criminal offence.

What has HMRC and/or other regulating bodies done in relation to the CCO?

As at 13 October 2020, there are 31 interventions taking place, across various business sectors spanning from small businesses through to the largest organisations.

HMRC is also training its staff to monitor and review circumstances where tax evasion is taking place in conjunction with the requirements of this legislation.

Companies subject to HMRC’s Business Risk Review will find that HMRC’s risk assessment includes a requirement for the business to demonstrate adherence with the CCO legislation, having implemented reasonable prevention procedures, alternatively it will be deemed to be “High Risk”.

What are the potential penalties and sanctions?

A company or partnership found guilty of failing to prevent the facilitation of UK or foreign tax evasion is liable to unlimited fines. Other repercussions of being found guilty of the offence include reputational damage and potential regulatory sanctions.

The six main principles

HMRC’s guiding principles which can be used to help businesses ensure they are complying with the regulations are as follows:

1. Risk Assessment – identifying the associated persons and the extent to which they can facilitate tax evasion
2. Proportionality of procedures – identifying and implementing proportionate procedures based on the findings of the risk assessment 
3. Top level commitment – the involvement of senior management in the creation and implementation of preventative procedures
4. Due diligence – implement risk-based procedures to ensure associated persons cannot facilitate the evasion of tax  
5. Communication and training – ensuring prevention procedures are effectively communicated and embedded within a business
6. Monitoring and review – reassessing the evasion risks, and updating the prevention procedures in a timely manner

How we can help

Mazars can help you protect your business from liability under the CCO legislation by assessing and reviewing your current compliance model for each of the six key principles in order to:

• identify any existing processes which may provide a defence against the CCO legislation;
• identify any gaps or areas that need to be adapted and/or improved;
• identify and provide training to the business and its employees;
• assist the business to effectively communicate its commitment in preventing the facilitating of tax evasion; and
• provide periodic external risk assessment to assess the robustness of business safeguards against the CCO legislation.

Update on CCO with HMRC

Watch the webinar, jointly hosted with CCO lead at HMRC, Samuel Dean for an update on the offence and what you need to consider.

Contact us

If you have any questions or would like to discuss the changes, please feel free to get in contact with a member of our team directly or use the contact us form.