New criminal offence for companies and partnerships
…an overview of domestic and foreign tax evasion facilitation offences
The Criminal Finances Act was passed by Parliament before the General Election and came into force on 30 September 2017. Part of the Act means that companies and partnerships can be criminally liable where they fail to prevent those who act for, or on behalf of, the business from criminally facilitating tax evasion. There is however a potential defence against this offence by the business putting into place a system of reasonable prevention measures.
The penalties for the offence include unlimited financial penalties and ancillary orders such as confiscation orders.
In this article, we cover an overview of the stages and in next article we will cover the potential defences you can put into place to mitigate your exposure to this issue.
There are three stages that apply to both the domestic and foreign tax evasion facilitation offences. There are additional requirements for the foreign offence but we only cover the UK tax evasion offence here.
- Stage one: the criminal tax evasion by a taxpayer (either an individual or a legal entity) under existing law
- Stage two: the criminal facilitation of the tax evasion by an ‘associated person’ of the ‘relevant body’ who is acting in that capacity
- Stage three: the ‘relevant body’ failed to prevent its representative from committing the criminal facilitation act
Stages one and two do not create any new offences. These are already criminal offences. Only a ‘relevant body’ can commit the new stage three offence, so it applies to incorporated bodies (typically companies) and partnerships, not individuals. The new offence is a strict liability offence which means that if stages one and two are committed, the relevant body will have committed the new offence (subject to claiming a defence).
Who is an ‘associated person’ for stage two?
A person is ‘associated’ with a relevant body if that person is:
- an employee
- an agent
- any other person who performs services for or on behalf of the relevant body. So for example, a sub-contractor can be an associated person
However the person must be facilitating tax evasion by acting in the capacity of an associated person. Examples which illustrate scenarios in which people are or who are not acting for and on behalf of the relevant body are:
- An employee transfers income producing assets to his wife with the deliberate intention that his wife will not declare the subsequent income. He has committed a tax evasion offence but not in his capacity as an employee of a relevant body.
- An employee falsifies information relating to a person providing services to the company so that the person is treated as a self-employed subcontractor rather than an employee. The employee has committed a tax evasion offence in his capacity as an employee.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Neither Essex Abel Ltd nor the author accept any responsibility whatsoever for any action taken based upon the information included in this article.