Historically it has been difficult to prosecute an organisation and its senior officers for failing to prevent people associated with it from criminally facilitating tax evasion. The Government introduced a new Corporate Criminal Offence in 2017 to hold organisations to account for failing to prevent the criminal facilitation of tax evasion, and to provide a stronger incentive to invest in good governance and preventative procedures. This offence applies to all “relevant bodies”, which broadly includes incorporated bodies and partnerships, including incorporated churches. Incorporated churches should be aware of this offence and implement preventative procedures for avoiding the facilitation of tax evasion.
- What is the Corporate Criminal Offence?
The Criminal Finances Act 2017 created two Corporate Criminal offences, one relating to the evasion of UK tax and one relating to the evasion of foreign tax. There are three stages to both the domestic and foreign tax evasion facilitation offences:
- a taxpayer (either an individual or a legal entity) has committed criminal tax evasion;
- an associated person, acting in the capacity of someone associated with a relevant body, deliberately and dishonestly facilitates that evasion. An associated person broadly includes any person providing services for or on behalf of the relevant body (including an employee, volunteer or contractor); and
- the relevant body fails to prevent the associated person from facilitating that criminal tax evasion.
Conviction for these offences may result in an unlimited fine, disqualification of director(s)/trustee(s), court orders (including confiscation orders) and reputational damage to the relevant body.
- Reasonable preventative procedures defence
If a relevant body can demonstrate that it has put in place a system of “reasonable procedures” to identify and mitigate its tax evasion facilitation risks, then prosecution is unlikely as it will be able to raise a defence. Reasonable preventative procedures means both formal policies adopted to prevent the criminal facilitation of tax evasion, and practical steps taken to implement, enforce and monitor those policies.
In recognising that procedures will differ for each body, HM Revenue & Customs has highlighted the following six guiding principles for implementing reasonable procedures, as a matter of best practice:
- Risk Assessment: The body should conduct, document and review a risk assessment of potential tax evasion facilitation risks.
- Proportionality: Procedures should be proportionate to the risk the relevant body faces of persons associated with it committing tax evasion facilitation offences. Procedures will depend on the nature, scale and complexity of the body’s activities.
- Top level commitment: Senior management should be involved in the creation and implementation of preventative procedures, and in decision making processes.
- Due diligence procedures: Bodies should adopt tailored and proportionate due diligence procedures, including obtaining fit and proper persons’ statements from trustees, employees and volunteers declaring their understanding of relevant policies.
- Communication (including training): Policies should be communicated to trustees, employees and volunteers and training needs considered.
- Monitoring and review: The body should monitor and review its preventative procedures and make improvements where necessary.
- Best practice
HMRC has recognised that the initial risk assessment should be undertaken by all relevant bodies. The risk assessment, mitigation procedures and any trustee policy should also be appropriately documented in board minutes. Incorporated churches should ensure a risk assessment is undertaken on its potential tax evasion facilitation risks and seek to implement HMRC’s guiding principles on preventative procedures.
Failure to prevent the criminal facilitation of tax evasion impacts all incorporated churches regardless of their size
The law and practice referred to in this article has been paraphrased or summarised. It might not be up-to-date with changes in the law and we do not guarantee the accuracy of any information provided at the time of reading. It should not be construed or relied upon as legal advice in relation to a specific set of circumstances.