The Criminal Finances Act is a key part of the UK’s response to global concerns about tax transparency and tax evasion. It was passed through Parliament just before the snap election and is expected to come into force in the autumn.
The cornerstone of the Act is the introduction of a new corporate offence of failing to prevent the facilitation of tax evasion in the UK or overseas. A company will be guilty of the offence if a person associated with the company (such as an employee or agent) deliberately helps someone to evade tax. The only defence for the firm is if it can demonstrate that it has put in place reasonable procedures to prevent the facilitation of tax evasion.
Does this sound familiar?
Broadly speaking, this is very similar to the corporate offence introduced in the Bribery Act. Lawyers will, no doubt, delight in trying to find meaning in the change of drafting from “adequate procedures” (in the Bribery Act) to procedures that are “reasonable in all the circumstances” (in the Criminal Finances Act). For the rest of us, let’s assume there is no practical difference and move on!
So, what do reasonable procedures look like?
HM Revenue and Customs (HMRC) has published draft guidance to help companies understand the types of processes and procedures that can be put in place. This is structured around six guiding principles that are almost identical to those highlighted in the supporting guidance for the Bribery Act 2010. The principles are: (i) risk assessment; (ii) proportionality of risk-based prevention procedures; (iii) top-level commitment; (iv) due diligence; (v) communication (including training); and (vi) monitoring and review.
What else is in the Act?
The Act also introduces Unexplained Wealth Orders (UWOs). HMRC, along with other agencies (such as the Serious Fraud Office), will be able to apply for an order that compels an individual to explain how they obtained assets that appear to be disproportionate to their known income. UWOs are limited to two groups of individuals – Politically Exposed Persons (PEPs), or where there are reasonable grounds to suspect that an individual has been involved in serious crime (although it is worth noting that, in the case of PEPs, no link to criminal behaviour is required).
In addition, there are changes to the ‘moratorium period’ in relation to consent-SARs. Where the National Crime Agency (NCA) refuses consent following a SAR, the 31-day ‘moratorium period’ can be extended by a court in up to 31-day periods to a maximum additional 186 days. This will allow more time for law enforcement agencies to conduct their enquiries.
What should you be doing?
The most important thing is to make sure your preparations are underway. Some key questions to consider are:
- Does your risk assessment methodology have a ‘tax evasion’ lens?
- Are your policies up to date?
- How are you demonstrating that senior management is involved and setting the right tone?
- How do your due diligence procedures address the risk of tax evasion?
- Have you updated staff about their responsibilities?
To discuss your training needs further on this topic, or to find out more about the elearning course that Eukleia is developing, please contact us. Our new elearning course is scheduled for release in September 2017.