Ethics – Corporate Criminal Offence

You have reviewed your contracts, trained staff on avoiding bribery and corrupt practices and you’ve been working with your bank to avoid the risk of money laundering. Now your tax advisor is contacting you to warn you about Corporate Criminal Offence – “what did we do wrong now?” you may ask. As a Finance leader in a small business ethical concerns such as this can easily be overlooked as the day to day issues crowd our inboxes. Take time out to swot up and get in action.

Under the Criminal Finances Act, 2017 – Corporate Criminal Offence legislates against facilitating tax avoidance schemes by connected parties. Such schemes could include tax evasion, corrupt tax planning arrangements and money laundering etc and connected parties can be suppliers, clients, partners and employees.

The potential maximum fines for a conviction are unlimited irrespective of whether there were any financial gains for the organisation from the activity.

That’s the factual stuff, what does it mean?

Although not directly relevant to what we do at Zupa, here is a stark example of how this should be put to practice – imagine you are a luxury car dealer and are instructed by a client to deliver their bespoke sports car to a hotel in Guernsey rather than at the dealership, home or business address all of which are in mainland UK. The client drops a heavy hint that as soon as the car is shipped to Guernsey she is planning on taking it on the ferry back to mainland UK. The purpose of delivering to Guernsey is solely to avoid paying UK VAT. Agreement to this arrangement would be facilitating tax evasion.

Now we have an idea of what this law covers one thing HMRC will not tolerate is inaction and so we are getting started by including the issue on the agenda of our next zupaHeads (Heads of Departments) meeting. Here is an outline of how HMRC expects organisations to respond:

  • Assign a designated person to oversee compliance
  • Arrange training for organisational leaders, managers and employees on CCO and how to prevent it
  • Do a risk assessment to discover where in your organisation the risks are and magnitude of possible non-compliant activity
  • Create and document policies designed to prevent facilitation practices
  • Provide your employees with a way of reporting suspect activity

Don’t

  • Assume your business is too small to be liable under this regulation
  • Procrastinate about this because you are too busy running your business
  • Assume your tax advisor will handle this for you

How could this play out in practice? In the above example, the dealer might advise the client that delivery of the vehicle will only be to UK Mainland addresses and that she be strongly advised to seek guidance on tax obligations prior to delivery elsewhere. The dealer should remind the client that he may be obliged to report details of the transaction to HMRC – a dedicated email address corporate.self-reporting@hmrc.gsi.gov.uk has been created to facilitate such reporting. We are constantly contemplating the question as to how our software may be used to facilitate criminal activity, and the processes that we need to be put in place to mitigate this from occurring (a consideration all too late for some of the existing big technology companies).

After reading that and applying it to your business you will be relieved to hear that HMRC are initially overseeing this with some degree of leniency so long as efforts are made to get started on this plan. Start now so you may rest easy at night.

Further reading:

https://www.gov.uk/government/publications/corporate-offences-for-failing-to-prevent-criminal-facilitation-of-tax-evasion

https://www.bdo.co.uk/getmedia/616b8474-00b8-4558-8117-1fa4016a0e70/corporate_criminal_offences_may_2018.pdf.aspx

https://www.rossmartin.co.uk/penalties-a-compliance/penalties-appeals/2077-corporate-criminal-offence-failure-to-prevent-tax-evasion