HMRC Ramps up criminal Investigations for Failing to Prevent the Facilitation of Tax Evasion

By Nicola O'Connor

05-2020

In February HMRC  announced that nine businesses were  under criminal investigation for failing to prevent the facilitation of tax evasion with a further 21 businesses across 10 different sectors under review.  We are told that the investigations relate to businesses of all sizes, but some are amongst the UK's largest. This is the first time we have been told of the number of businesses actively under investigation for these offences. 

The corporate criminal offences of failing to prevent the facilitation of tax evasion relating to UK tax and non-UK tax, contrary to Criminal Finances Act (CFA) came into force on 30th September 2017. The offences are strict liability which means that the prosecution do not have to prove that the companies board or senior management were aware of the facilitation of tax evasion.  The offences also have extra territorial effect. It does not matter where the company is located as long as the tax being evaded is UK tax. Those companies with a direct nexus to the UK could also be caught by non-UK taxes being evaded.

So far there have been no prosecutions but this may be about to change.  In addition to the on-going investigations HMRC announced this month that almost 800 people have reported their employers for fraudulently claiming money from the Coronavirus Job Retention Scheme.   Any abuse of the Job Retention Scheme is technically a tax fraud as the scheme gives rise to an exemption for National Insurance Contributions.  It is very likely that criminal investigations into these reports will consider offences under the Criminal Finance Act.

How will this impact upon the hotel industry?

HMRC research shows that many businesses have still to act some 3 years following the introduction of the CFA.  We know from experience that many businesses do not believe that the Act applies to them, but there will be few in the hotels and leisure sector to whom the CFA does not apply.  

HMRC say that their aim in investigating these offences is not simply about increasing the number of prosecutions but to change industry practice and attitudes towards risk and their efforts to prevent tax crime happening in the first place. 

Hotels rely upon supply chains and sub-contractor networks which will make them particularly vulnerable to investigations under these rules.  Businesses, not based in the UK, can also be caught as the Act has extra territorial effect.  Those businesses need to carefully consider how people acting on its behalf might be in a position to facilitate tax evasion and put reasonable preventative measures in place.  These procedures all stem from a risk assessment having been conducted.  HMRC will be scrutinising what active steps have been taken and documented to prevent the facilitation of tax evasion.  Only those businesses that can show that they have 'reasonable preventative procedures' in place have a defence in law. Those that do not can be at risk of criminal prosecution.

For those hotels with preventative procedures already in place, it has never been more important to focus on updating risk assessments which reflect the dramatic changes that we have seen in working practices during the pandemic.  Hotels need to ensure that any reasonable preventative measures that they have in place are still fit for purpose. Those found guilty of the offences face unlimited fines, unwelcome publicity and reputational damage.

Our Tax Disputes and Investigations Team launch the CFA Toolkit.

We have designed a toolkit that clients can use interactively with us in order to get themselves up to speed quickly.  The CFA toolkit is hosted online and provides a cost effective step by step solution for those businesses who currently have no or limited measures in place.  Without diverting resources you will be able to access all of the information you need to manage the process yourselves with some help from our team.

Our toolkit can help businesses around the globe deal with the required compliance around the Criminal Finances Act 2017. For more information please click here to see a brief summary and video which show an over view of the Toolkit and the legislation.

The toolkit has been designed by our team who have a rare insight amongst accounting and law firms as they are used to advising and defending businesses facing tax related investigations and prosecutions by HMRC.  If you would like to know more please do not hesitate to contact us.