The Criminal Finances Act – what is it and why does it matter?

Posted by Oliver Weiss on
This article was first published in People Management Magazine on 25 Jan 2018.

The legislation creates a new corporate criminal offence of failure to prevent tax evasion, but how does this impact on HR? 

The Criminal Finances Act 2017 makes companies and partnerships (relevant bodies) criminally liable where a person acting on their behalf (associated person) facilitates tax evasion. 

The new law makes it easier for relevant bodies to be held to account for non-compliance without proof of criminal intent or the knowledge of senior managers. HR must be aware of these changes and take adequate steps to protect their organisations from potential liability. 

How is the offence committed?

The offence requires:

  • criminal evasion of tax by the taxpayer; and
  • criminal facilitation of the tax evasion by an employee or other associated person acting on behalf of the relevant body.

If these two elements exist, an employer will be guilty of failing to prevent tax evasion facilitation (in the UK or overseas) unless it can show it had ‘reasonable prevention procedures’ in place or that it was not reasonable to expect the organisation to have prevention procedures in place. The government has produced useful guidance on this. 

How can HR help put in place ‘reasonable prevention procedures’? 

Risk assessments 

Employers should undertake risk assessments to assess the nature and extent of their exposure to the risk of associated persons criminally facilitating tax evasion. HR can help to ensure an effective risk assessment by encouraging oversight by senior management, helping to collate relevant information (for example, where opportunities or motives for facilitation might arise), accurately documenting the risk assessment, ensuring there are regular reviews, implementing procedures to identify emerging risks and making sure there is an avenue for internal challenge. 

Policies and procedures 

The new offences do not require excessively burdensome procedures; however, formal policies setting out the relevant body's position on the facilitation of tax evasion should be adopted. There should be a clear reporting procedure in the whistleblowing policy for notifying suspected facilitation of tax evasion.

In addition, employers may wish to insert a term into employment contracts specifically prohibiting employees from facilitating tax evasion. It's also important to review pay and bonus structures to ensure they do not encourage pursuing profit to the point of condoning tax evasion (for example, manipulating the figures or categories of payments subject to tax).

Due diligence procedures should be updated specifically to draw attention to the corporate offence. HR should organise training sessions and send out details of the updated policies to all associated persons to ensure they are embedded and understood throughout the organisation. 

Senior management involvement 

Senior management should be seen to support action from the top – they should be involved in the decision-making process for the risk assessment and potentially take part in the development and review of preventative procedures. Selecting a key individual or department that will be involved in the prevention procedures and naming these people in the relevant policies is advisable.

It is essential that all measures are proportionate to the risks that are faced by that specific relevant body. For example, tax advisers will need to be particularly conscious of the risks to the organisation under the new law. Failure to do this may result in unlimited fines. If convicted, companies will face reputational damage and may also be prevented from being awarded public contracts. 

About the Authors

Oliver heads up the London Employment, Pensions & Benefits and Immigration Team.

Oliver Weiss
Email Oliver
020 7814 5494

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Hannah is a Paralegal in our Employment team.

Hannah Waterworth
Email Hannah
029 2069 6227

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