Are you guilty as charged without even knowing it?

17 October 2020

The corporate criminal offence (CCO) of failure to prevent the facilitation of tax evasion  came into effect three years ago , making it a criminal offence for relevant bodies (companies, limited liability partnerships and partnerships)  to fail to prevent the facilitation of tax evasion by their employees, agents and others performing services for or on their behalf.  

Failure to prepare

We’ve always known that the offence carries strict liability, which should encourage all affected entities  to risk assess their exposure to the facilitation of fraud. But of course, as can often be the case with new enforcement procedures, many are sitting tight without taking positive action . That may be because HMRC is yet to bear its very sizeable teeth or it may be from a misplaced sense of security due to a good compliance record in respect of their own tax affairs .

Any organisation following such a risky and potentially disastrous approach may well regret not affording CCO the respect it deserves. After all, how many provisions in tax legislation  have the potential for criminal charges and unlimited fines, irrespective of the intent? Furthermore, the CCO and the associated criminal conviction poses the threat of potentially closing many regulated businesses down , especially those under HMRC’s oversight.

HMRC compliance activity

All CCO breaches are progressed on a criminal footing, and it shouldn’t be too long before the first cases start to reach the tax tribunal . According to data shared by HMRC, at the end of August 2020, there were:

  • 10 active CCO criminal investigations; and
  • 22 further potential CCO cases under review.

Ten active investigations in three years may not seem a lot and may offer encouragement to ambivalent organisations. However, the progress made to date by HMRC is in fact reasonably impressive.  

Firstly, a CCO investigation will be predicated on HMRC first establishing the suspicion of:

  • tax evasion by a third party; and
  • the facilitation of that evasion.

Those who practice in the tax investigations market will appreciate the time and efforts often required to establish these suspicions.

Secondly, although many of HMRC’s investigations to date are understood to relate to indirect tax or PAYE, it’s inevitable that tax investigations into a relevant body’s own direct tax affairs  will also lead to criminal proceedings. In that respect, the enquiry window for most corporation tax returns for the accounting periods ended 30 September 2018, the earliest period for which the CCO applies, has only just closed . The fact, therefore, that some of the earliest corporation tax returns potentially subject to the CCO remain open for investigation, whilst others covering similar timeframes have resulted in criminal prosecution, further amplifies the progress to date.

HMRC’s approach

In contrast to the public profile afforded to the progress made to date, HMRC focuses  on a more covert approach to initiating individual investigations. Indeed, the first an organisation may know of an investigation under the CCO is when HMRC officials arrive at the door with an arrest warrant for the suspected facilitator, at which time they would typically ask for evidence of the relevant body’s reasonable prevention procedures. Without a CCO risk assessment, there may be no meaningful evidence that an organisation has reasonable prevention procedures and with no meaningful evidence, a criminal prosecution could follow.

Any business yet to undertake a CCO risk assessment will be carrying up to three years of enhanced risk of prosecution, with that risk increasing day by day. After all, if you have not risk assessed your business, you may end up being guilty as charged without even knowing it?

For more information please get in touch with Andrew Walker or Paul Marcroft.