HMRC charges first company for failing to prevent facilitation of tax evasion
HMRC has brought its first prosecution under the Corporate Criminal Offence (CCO) portion of the Criminal Finances Act 2017 (CFA). A Stockport-based boutique accountancy and advisory firm has been charged in relation to research & development (R&D) tax relief fraud. Six individuals have also been charged with offences including cheating the public revenue and money laundering.
What is the Corporate Criminal Offence?
Introduced on 1 September 2017, the CCO targets corporates and partnerships who fail to prevent their employees or associates from facilitating tax evasion - regardless of where the tax was due.
Before its introduction, HMRC struggled to prosecute organisations where staff or associates had assisted with tax evasion, often because senior management claimed ignorance or turned a blind eye. To address this, the CCO introduced strict liability: prosecutors no longer need to prove intent, and companies cannot rely on a defence of “we didn’t know.”
Companies can, however, avoid punishment if they have proof of them having reasonable procedures in place to prevent tax evasion facilitation.
Why has it taken so long for a company to be charged?
Described by MPs and campaigners as a “paper tiger”, the CCO made criminal prosecutions easier to pursue, which raises the question of why it has taken just under 8 years for a company to be charged. It may be that HMRC has been a seeking a case that it believes will result in a successful criminal prosecution, otherwise any failure may adversely impact the legislation.
However, this prosecution supports the view that HMRC is stepping up its efforts to close the tax gap and is adopting a tougher stance on tax avoidance and evasion. As part of its wider compliance drive, HMRC is recruiting 500 new compliance officers, with a further 5,000 planned during this Parliament.
Consequently, we are seeing a notable rise in HMRC Compliance Activities which can include:
- Enquiries and investigations
- Nudge letters to taxpayers
- Targeted campaigns across multiple sectors
Even if your tax affairs are in order, there is still a risk of being selected for review.
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