HMRC enforcement of the facilitation of tax evasion offences

HMRC has announced that it is currently conducting nine live investigations under the corporate criminal offences of failing to prevent tax avoidance, introduced in 2017. There are also a further 21 cases (somewhat oddly referred to as “opportunities” in the press release) under review across ten different business sectors, including financial services, oil, construction, labour provision and software development. These investigations and cases cover the full range of businesses from small businesses to “some of the UK’s largest organisations”.

The controversial new offences were introduced in 2017 and are aimed at businesses which fail to take reasonable steps to prevent the facilitation of tax evasion. The purpose of the new offences was to make it easier for the Government to hold companies to account for the actions of their agents, where those agents facilitate tax evasion, but without the direct involvement or knowledge of senior management. In the same way that a professional who dishonestly assists a customer to evade tax is guilty of the tax offence in which he or she becomes complicit, the Government argued that the corporation which employs this professional and fails to take reasonable steps to prevent their offending should also face prosecution.

With potentially unlimited fines for organisations found guilty of the offences, it is important that organisations take their responsibilities under these provisions seriously and put in place reasonable procedures to prevent the facilitation of tax evasion. However, an Ipsos Mori report released in Spring 2019 demonstrated that the message had not necessarily been heeded by all affected businesses. Perhaps one of the most surprising findings of Ipsos Mori’s report was that only 25% of businesses surveyed had heard of the new offences. However, that figure rose to 58% of large businesses surveyed (i.e. businesses with 250 plus employees) and 58% of financial and insurance firms, a sector that HMRC has always considered high risk. The introduction of the offences had clearly not yet created the wholesale change in corporate attitudes to facilitating tax evasion that HMRC anticipated.

Now, HMRC appears to be keen to demonstrate that it is actively enforcing the new offences and has released the information through a Freedom of Information release following a number of requests made under the Freedom of Information Act on this subject. Biannual updates are promised in the future.

The Government stresses that its priority is not simply maximising the number of corporate prosecutions, however, but changing industry practice and attitudes towards risk to encourage organisations “to do more to prevent tax crime happening in the first place”. Accordingly, HMRC does not have a numerical target for these offences but will prioritise risks and sectors that will have the most impact on changing behaviour.

The announcement should act as a timely reminder for businesses of their responsibilities under the new offences. The only defence is to have reasonable prevention procedures in place, which need only be proportionate to the risks to the business. Financial services is viewed by HMRC as a high risk sector per se and therefore all businesses within the sector are expected to put reasonable prevention procedures in place, even if the business is at the lower end of the risk spectrum. Having a documented risk assessment in place is a bare minimum expectation of HMRC.

Reasonable prevention procedures are expected to be put in place to deal with risk areas identified as part of a risk assessment – such as enhancing due diligence and payment processes, staff training and/or seeking contractual comfort from higher risk service providers that are associated persons. Businesses are, of course, expected to monitor and review the risks they face and the appropriateness of their preventative procedures on an ongoing basis and make improvements where necessary.