As at 27 May 2021, HMRC had a total of 14 live Criminal Corporate Offence (CCO) investigations, with a further 14 under review. A further 40 cases have been rejected for investigation.
Although details of these active cases have not yet been made public, we know that they involve tax and duty regimes across organisations of all shapes and sizes, spanning 10 different business sectors.
The CCO applies to all companies, LLPs and partnerships, regardless of size, with affected entities being legally obliged to actively prevent tax crime.
The offence, introduced by the Criminal Finances Act on 30 September 2017, can impose an unlimited fine and a criminal conviction for companies and partnerships which fail to prevent anyone acting on their behalf from facilitating a third party's tax evasion.
CCO is a 'strict liability' offence, meaning that it applies even when the organisation was unaware of the facilitation. A company can therefore be subject to the criminal charge for being 'asleep at the wheel' while someone associated with it knowingly helped another individual or entity evade tax.
The only defence against a charge under CCO is having reasonable prevention procedures in place. This requires a business to, at the very minimum, conduct a risk assessment to identify activities and processes which could be exploited to deliberately assist a third-party to commit tax evasion, along with addressing the gaps in existing controls.
We can see from the recent statistics that HMRC is putting more effort into bringing CCO offenders to book. It’s also clear that HMRC does not discriminate when it comes to testing whether CCO obligations have been met, with a variety of business sizes and sectors now under scrutiny.
CCO investigations and the attendant risk of fines or prosecution are still under the radar, at least for the time being. We put this down to the absence of any charging decisions and therefore the ongoing taxpayer confidentiality. However, that will change once the first charges are made and the identity of the entities released.
The absence of publicity may also go some way to explaining why many affected entities have so far failed to comply with their obligations. It could also be due to ignorance of the law, a misplaced perception that if the client’s tax affairs are in order there is no exposure or even an underestimation of the serious consequences resulting from a criminal conviction.
We urge all companies, LLPs and partnerships to urgently prioritise a response to CCO if they haven’t addressed their obligations already. The CCO legislation has been in force for almost four years, and every day that passes without reasonable prevention procedures being implemented, is another day of risk for that business. Not only is that the risk of a criminal conviction and unlimited fine, but is also the reputational, and potentially regulatory, damage that comes with it.
For those who continue to await details of the first conviction becoming public before taking any action, it may prove to be too little too late.
Those who require support with regards to CCO can speak to an RSM tax dispute specialist on +44 (0)800 032 8374.