Criminal Finances Act 2017

The Criminal Finances Act (CFA) makes companies and partnerships criminally liable for failing to prevent tax evasion. At AHACCOUNTANTS, we provide expert guidance on the key aspects of the Act and its implications for your business in the Nottingham area.

Overview of the Act

Under the CFA, two key criminal offences were introduced:

1. Domestic Fraud Offence: This offence criminalizes companies and partnerships for failing to implement reasonable prevention measures to stop their employees or associated persons from facilitating tax evasion.
2. Overseas Fraud Offence: This applies to corporations trading within the UK that fail to implement reasonable procedures to prevent tax evasion facilitation in another jurisdiction.

These rules apply to tax evasion committed both onshore and offshore and encompass all types of taxes.

Three Stages of Tax Evasion Facilitation

The CFA outlines three stages relevant to both domestic and foreign tax evasion facilitation offences:

1. Criminal Evasion: A taxpayer commits criminal tax evasion, including national insurance contributions (NICs).
2. Criminal Facilitation: An ‘associated person’ of a relevant body commits criminal facilitation of tax evasion.
3. Failure to Prevent: The relevant body fails to prevent its employee from facilitating tax evasion or does not implement reasonable measures to prevent this facilitation.

Understanding ‘Relevant Body’ and ‘Associated Person’

Only ‘relevant bodies’—legal entities like incorporated bodies and partnerships—can commit these offences. An ‘associated person’ includes:

• Employees of a relevant body.
• Agents of a relevant body.
• Individuals providing services for or on behalf of a relevant body (e.g., subcontractors).

If stages one and two are committed, the relevant body may be deemed to have committed a corporate offence unless a reasonable defence is claimed.

Implementing a ‘Reasonable Defence’

To avoid prosecution, a relevant body must demonstrate it has implemented adequate procedures to prevent tax evasion facilitation. The procedures must go beyond mere compliance and be substantial enough to demonstrate commitment to prevention.

High-Risk Sectors

Organizations in high-risk sectors, such as banks and financial services, are advised to conduct thorough risk assessments to gauge the likelihood of their associated persons committing tax evasion facilitation. Following government guidance is recommended.

Key Steps for Compliance

HMRC has published guidance on necessary procedures to prevent associated persons from committing tax evasion facilitation. This guidance can help you establish effective processes.

Six Guiding Principles

The government recommends six guiding principles to help inform your preventative processes:

1. Risk Assessment: Evaluate the risk your organization faces from associated persons facilitating tax evasion.
2. Proportionality of Procedures: Your prevention measures should match the nature and complexity of your business activities.
3. Top-Level Commitment: Senior management must demonstrate a commitment to preventing facilitation of tax evasion.
4. Due Diligence: Apply proportional due diligence on individuals performing services on your behalf.
5. Communication: Ensure associated persons receive adequate training on tax evasion facilitation and your prevention policies.
6. Monitoring and Review: Conduct regular reviews of your prevention measures and adapt them as necessary.

Penalties for Non-Compliance

Failing to prevent associated persons from committing tax evasion facilitation can result in unlimited fines and ancillary orders, including serious crime prevention or confiscation orders.