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Criminal Finances Act

Criminal Finances Act – Guidance for Small Businesses

What is the Criminal Finances Act?

The Criminal Finances Act became law in April 2017 and it is expected that the regulations will take effect from 30th September 2017. The new rules cover both UK and overseas taxes (where there is a UK element).

The Criminal Finances Act 2017 will make companies and partnerships criminally liable if they fail to prevent tax evasion by either a member of their staff or an external agent, even where the business was not involved in the act or was unaware of it. Sectors particularly at risk of facilitating tax evasion include financial services, accountancy practices and legal firms.

A prosecution could lead to both a conviction and unlimited penalties.

What is different about the Criminal Finances Act?

Tax evasion is already a criminal offence, but up to now it has not been possible to attribute criminal liability to the company where it occurred. The new regulations target deliberate and dishonest behaviour. They do not create any new offences at the individual level.

For a company to be liable under the Act, there must have been:

1) Criminal tax evasion by a taxpayer (either an individual or an organisation) under existing law

2) Criminal facilitation of the offence by a representative of the organisation, as defined by the Accessories and Abettors Act 1861

3) Failure by the organisation to prevent its representative from committing the criminal act

The Act passes responsibility to businesses for preventing their employees, workers, external agents and contractors from committing tax evasion.

What should you be doing to prepare for the Criminal Finances Act?

An organisation can avoid criminal liability if it is able to show that it had implemented reasonable prevention procedures.

Here are some practical tasks to consider:

  • Review current practices and procedures by carrying out risk assessments on products, services, customer data and internal systems that could be used to facilitate tax evasion
  • Communicate the organisation’s commitment to preventing the facilitation of tax evasion
  • Add relevant clauses to employment contracts and service level agreements stating that individuals must not engage in the facilitation of tax evasion and must report their concerns straightaway
  • Provide relevant staff training on recognising and preventing financial crime
  • Provide a safe whistle-blowing procedure
  • Introduce mechanisms to monitor and enforce prevention procedures
  • Carry out regular reviews of prevention procedures and amend them where required

For further information, HMRC has issued draft guidance and a series of fact sheets.

If you would like to discuss how these regulations will affect your business or need help implementing changes, please call Kay on 01952 246621 or email her on: kay@kayhealdhr.co.uk

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