Is your business facilitating tax evasion?

Is your business facilitating tax evasion? Put like that, most of us would automatically answer ‘no’.

But let’s re-phrase the question. Does your business make cash payments to suppliers or contractors? Has a customer asked for an invoice to be issued in a way that changes or disguises either the nature of the goods or services involved, or the parties involved? Do any suppliers or contractors have overly-complicated supply chains or payment procedures? And are there any self-employed contractors performing jobs indistinguishable from those of full employees?

All of a sudden, there’s a lot less certainty. And these warning signs, to be clear, are just four of almost twenty such so-called ‘red flag’ indications that tax evasion may be occurring.

Why does this matter?

Surely, you may be thinking, this is essentially an issue for the tax authorities—in the UK, HMRC, in other words. Because while tax evasion is unethical, you’re possibly thinking, it’s not the job of business to police the tax system.

Wrong! Thanks to the UK Criminal Finances Act 2017, which came into force last September, it is the job of business to make sure that reasonable measures are in place so as to avoid—either inadvertently, or deliberately—the facilitation of tax evasion.

Simply put, businesses are now criminally liable if they fail to prevent tax evasion—either by an employee, or an external agent—even if the business was unaware that such evasion was taking place. And even if the evasion took place overseas, or involved a tax obligation to overseas tax authorities.

Moreover, a successful prosecution under the Act can result in a criminal conviction, and potentially unlimited penalties.

What can be done?

In many ways, the UK Criminal Finances Act 2017 is similar to another piece of recent legislation intended to enforce ethical business behaviours, the Bribery Act 2010.

As with the Bribery Act, the only defence is for businesses to either:

  • have in place reasonable prevention procedures, or
  • be able to prove that it was not reasonable in the circumstances for them to have any prevention procedures. 

In other words, the only real defence is to have reasonable prevention procedures in place.

What might these be? Government guidance again echoes the Bribery Act 2010:

  • Risk assessment
  • Proportionality of risk-based prevention procedures
  • Top level commitment
  • Due diligence
  • Communication (including training)
  • Monitoring and review 

Businesses are not required to undertake excessively burdensome procedures, but compliance does demand more than mere lip-service. Businesses need to be able to demonstrate that they have taken reasonable steps, and have put in place adequate systems, controls, policies, and procedures.

Here at The Legal Director, we’d suggest that—as a minimum—the risk assessment should involve watching out for the twenty or so ‘red flag’ behaviours identified by experts as indicating possible tax evasion.

How concerned should you be?

Should businesses be worried about falling foul of the UK Criminal Finances Act 2017?

In our view, yes.

This is not just another piece of legislation designed to encourage businesses to behave ethically. Instead, this is legislation with a direct connection to the government purse strings, and where HMRC doubtless sees an opportunity to increase tax revenues.

VAT, income tax, National Insurance contributions, corporate tax, capital gains tax—the tax take could be sizeable.

And so, of course, could be the penalties, if a business were to be convicted of facilitating tax evasion.

What to do?

Our view: it’s time for businesses to start thinking about how to respond to this new regime.

Almost certainly, there will be shortcomings somewhere in your systems and procedures—and at the very least, a policy will need to be put in place, a risk assessment carried out, and contract terms updated.

As ever, we can help and advise. To find out more, pick up the phone, or email us at

Posted Monday, May 7th, 2018 by Warren Ryland



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