UK: Advisers risk 'sleepwalking' into criminal prosecution.

As published on ftadviser.com, Wednesday 20th March, 2019


Advisers could "sleepwalk" into a criminal prosecution if they cannot demonstrate they have reasonable procedures in place to prevent tax evasion by their clients, a tax company has warned.

Under the Criminal Finances Act 2017 companies such as advisers, accountants and partnerships can be found criminally liable for failing to prevent tax evasion by individuals or other businesses they work with.

A company has a defence to the offence if it can demonstrate a system of "reasonable procedures that identifies and mitigates its tax evasion facilitation risks".

Andrew Hinsley, tax partner at RSM, warned companies must familiarise themselves with the requirements under the offence to avoid criminal prosecution.

He said: "As the company or partnership does not have to be guilty of any deliberate dishonest behaviour for the act to apply, simply being asleep at the wheel is enough, these organisations should make sure they don’t sleepwalk into a criminal prosecution."

In December 2018 research published by HM Revenue & Customs, and carried out by market researchers Ipsos Mori, found 74 per cent of businesses had not heard of the Criminal Finances Act 2017.

Among those businesses which had heard of the Act, 20 per cent had made changes to their processes to comply with the requirements and 11 per cent were planning to introduce changes.

The majority, 64 per cent, had not made or did not plan to make any changes following the introduction of the Act. 

The research comprised of interviews with senior managers and directors at 1,002 businesses between August and September last year.

Mr Hinsley suggested companies implement "relatively straight forward" changes to address the requirement, including communicating the importance of compliance with tax laws to third parties and imposing sanctions against those who help others deliberately evade tax.

Mr Hinsley said: "The starting point for the defence of having reasonable prevention procedures in place, as HMRC stresses, is a risk assessment.

"Without this, businesses have no way of establishing their potential exposure and what can be considered reasonable by way of procedures to prevent this."

He also recommended enhancements to due diligence, on-boarding procedures and contractual terms, but warned where particular risks arise in a business more specific change may be needed.

Martin Bamford, managing director at Informed Choice, said no adviser "in his or her right mind" would ever facilitate tax evasion, but warned the industry should be aware it is a serious criminal offence.

He said: "Failing to prevent the facilitation of tax evasion really widens the scope of the potential offence and we all need to take extra care.

"This is about having in place strong systems and controls, something required of us all by existing FCA regulations.

"Staff should be trained to identify and report facilitation of tax evasion. Putting in place reasonable prevention measures is key here to staying out of trouble."

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