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Businesses face penalties for tax evasion

By May 23, 2017January 26th, 2021Member News & Updates

Business owners are being urged to get their houses in order before draconian new rules on tax evasion take effect later this year.

From a likely date of September 2017, a new Criminal Finances Act will make businesses criminally liable for failing to prevent tax evasion by either their employees or agents, even where the business was not involved in the act or was unaware of it. A prosecution could lead to both a conviction and unlimited penalties.

Currently, where an individual evades tax and this is not prevented by their employer, the employer is not liable – only the individual.

According to top 40 accountants Bishop Fleming, the new rules were rushed into law just before Parliament broke up for the election, and it will be down to the new government to decide when the regime should actually start, though the autumn seems the most likely time. At the moment, very few business owners and executives are even aware that the impending regulations exist.

Andrew Browne, Bishop Fleming's Head of Tax, commented: “This is a serious attempt by the government to crackdown on money laundering and tax evasion, with businesses being very much in the firing line. The new Act applies to both companies and partnerships, and covers UK and overseas taxes (where there is a UK element); I'm concerned that there is very little time for businesses to gear up for this.”

Mr Browne warned: “Firms will have to ensure that they have reviewed their practices and procedures to minimise any risks, and put in place appropriate monitoring and training of staff at all levels. The Act effectively makes owners and managers responsible for preventing their staff and external agents and consultants from committing tax evasion. And the larger and more complex the business, the greater the risk.”

A business can avoid liability where it can show that it had implemented reasonable prevention procedures, or where it can show that in the circumstances it would have been unreasonable or unrealistic to have expected it to have had procedures in place.

A further measure in the Act allows for Unexplained Wealth Orders to be served on individuals suspected of a serious crime to explain the sources of their wealth; any proceeds of crime can be seized by the authorities.

The Bishop Fleming partner added: “With the government introducing more and more tax evasion rules, it becomes ever more difficult for businesses to ensure they do not in some way facilitate a crime, either through lax procedures or turning a blind eye.”

Bishop Fleming have published more information on the new Act on their website. Here is the link

Image: Andrew Browne, Head of Tax, Bishop Fleming