Criminal finance act

This month, MHA Carpenter Box Practice Director Chris Coopey, outlines the potential impact of the new Criminal Finances Act on companies and partnerships, and provides a brief overview of new Payroll guidance from HMRC.

The Criminal Finance Act took effect on 30th September 2017. It makes companies and partnerships (referred to in the legislation as ‘relevant bodies’) criminally liable if they fail to prevent the facilitation of tax evasion being carried out by an employee, anyone acting on their behalf, or someone acting as an agent; whether the tax evaded is owed in the UK or in a foreign country. If found guilty, the business could face unlimited fines and potentially further consequential sanctions within their industry or profession.

Previously, attributing criminal liability to a relevant body required prosecutors to show that the senior members of the relevant body were involved in and aware of the illegal activity, typically those at the Board of Directors level. This had a number of consequences:

It was more difficult to hold a large multinational organisation to account. In large multinational organisations, decision making is often decentralised and decisions are often taken at a level lower than that of the Board of Directors, with the effect that the relevant body can be shielded from criminal liability. This also created an ‘un-level’ playing field in comparison to smaller businesses where the Board of Directors will be more actively involved in the day-to-day activities of a business.

The common law method of criminal attribution may have acted as an incentive for the most senior members of an organisation to turn a blind eye to the criminal acts of its representatives, to shield the relevant body from criminal liability.

The common law may also have acted as a disincentive to internal reporting of suspected illegal tax activity to the most senior members, who would be required to act upon such reporting since otherwise the corporate entity might be criminally liable. The cumulative effect was an environment that could do more to foster corporate monitoring and self-reporting of criminal activity related to facilitating tax evasion.

This meant that bodies that refrained from implementing good corporate governance and strong reporting procedures were harder to prosecute, and in some cases lacked a strong incentive to invest in preventative procedures. It was those bodies that preserved their ignorance of criminality within their organisation that the earlier criminal law could most advantage. The new corporate offence therefore aims to overcome the difficulties in attributing criminal liability to relevant bodies for the criminal acts of employees, agents or those that provide services for or on their behalf.

This Act has the effect of creating an offence at corporate and partnership level which does not require the directors/partners to have had any knowledge of the offence in question. Broadly, the offence is the failure to prevent the crimes of those who act for or on behalf of the corporate body or partnership, instead of the need to attribute criminal acts to that body.

For a firm to be criminally liable under the new Act, there are three elements to the offence:

  1. There must be the execution of a criminal act of tax evasion.
  2. The crime must have been facilitated or carried out by a person associated with a relevant body.
  3. The relevant body failed to initiate adequate prevention procedures in relation to the act carried out by the associated person.

A defence is available when it can be shown that ‘reasonable prevention procedures’ were in place to prevent the associated person from committing or facilitating the crime; or that it would have been unreasonable or disproportionate to expect such procedures to be in place.

The government advises that any reasonable prevention procedures should be based on six guiding principles:

Risk assessment – the relevant body should assess the nature and extent of its exposure to the risk of an associated person committing a criminal act;

Proportionality – the procedures should take into account the nature, scale and complexity of the relevant body’s activities;

Top level commitment – the management of the relevant body should be committed to preventing illegal acts and should foster a culture that tax evasion and its facilitation is never acceptable;

Due diligence – with appropriate procedures put in place for all people who perform services for the relevant body;

Communication – training staff and ensuring the message effectively gets across to all employees and agents;

Monitoring and reviewing – ensuring that whatever procedures are put in place are regularly reviewed and updated and amended where necessary.

This may not be relevant to every business, but it is certainly worth pausing for thought if you do have employees and assessing your risk in relation to the activities that they may undertake, especially if there is scope for them to be putting the business at risk by keeping some of their activities under the radar.

Please contact MHA Carpenter Box for our information sheet if you require further details on this new legislation.

PAYROLL – new guidance for employers

HMRC have issued the October 2017 Employer Bulletin which contains a number of articles relevant to employers on payroll related issues.

HMRC is advising that following the changes to the valuation of Benefits in Kind (BiK) where there is a cash option available, they will consult and then issue the necessary amendments to the PAYE Regulations. The guidance will also clarify the taxable amounts that need to be reported under Optional Remuneration and salary sacrifice arrangements.

Where a BiK is taken rather than the alternative cash option, the taxable value of the benefit is the higher of the cash foregone or the taxable value under the normal BiK rules. Transitional provisions apply for arrangements entered into before 6 April 2017.

The Bulletin also includes articles on:

Changes to Business Tax Accounts for employers – including new data on the Apprenticeship Levy and the introduction of monthly and annual statement pages.

Data matters – ensuring Real Time Information (RTI) returns are submitted on or before the date the wages are paid, that the returns are accurate, cover all employees, including those that earn less than the National Insurance lower earnings limit.

Paying HMRC at the Post Office – via transcash. This option will be withdrawn from 15 December 2017.

Construction Industry Scheme (CIS) – clarification of when CIS deductions should be reported via the Employer Payment Summary (EPS).

Student Loans – new income thresholds introduced from April 2018 for Plan Type 1 and 2 loans.

Apprenticeships benefit your business – includes links to help on finding apprenticeship training and recruiting an apprentice.

For help with payroll matters, please call MHA Carpenter Box on 01903 234094.
Our BACs accredited Bureau is here to help.

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