Tax corporate criminal offence: businesses of all sectors investigated

Tax experts at Pinsent Masons, the law firm behind Out-Law, said that the figures should act as a wake-up call to all businesses, regardless of size and business sector. The investigations and cases under review cover businesses of all sizes, from the smallest to some of the UK's largest; operating across 10 different sectors including financial services, oil, construction, labour provision and software development.

Andrew Sackey of Pinsent Masons said: "HMRC worked hard to get these new criminal powers and is determined to use them".

"Asset managers and private banks are obvious targets for HMRC's activities. Infrastructure, haulage, labour service providers and construction businesses – indeed, any sectors that have lengthy supply chains or extensively use contractors also look particularly vulnerable to investigations under these rules. However, boards in other sectors also need to be asking themselves serious questions about whether they are at risk," he said.

The corporate criminal offence rules were introduced in 2017, and make it a criminal offence if a business fails to prevent its employees or agents from facilitating tax evasion. A successful prosecution can result in an unlimited fine and a criminal record for a business, restricting its access to some regulated markets and ability to bid for government contracts in the UK and overseas.

Corporate boards need not be aware of the conduct undertaken by their employees or subcontractors for an offence to have taken place. In addition, the company must be able to prove that they have adequate procedures in place to prevent the facilitation of tax evasion, making it "very different to the risks previously faced by companies", said Sackey.

"The corporate criminal offence is often described as HMRC's Bribery Act, however the level and breadth of this activity is on a far greater scale than we have seen before," he said. "In terms of detection and intervention rates, the corporate criminal offence is already a far bigger risk to businesses than the Bribery Act."

"HMRC teams are increasingly conducting tax evasion investigations as normal, using either civil or criminal powers; and then exploring whether there has been a facilitation by someone associated with a company and, if so, testing if the company has the right controls in place. This makes it simpler to identify, investigate and subsequently prosecute non-compliant businesses," he said.

"The fact that HMRC has confirmed that it is applying this offence across 10 business sectors with very different operating models reveals that they are using the power to send the message that corporates everywhere need to revisit their understanding of the risk of facilitation," he said.

Penny Simmons of Pinsent Masons said that businesses should review their procedures to ensure that they were appropriate and up to date, particularly if they had not done so since the offences came into force.

"This news should act as a wake-up call to businesses which have so far put dealing with the corporate criminal offences to the bottom of their compliance to-do list," she said.

"Businesses need to quickly commit some time and resource to undertaking a risk assessment to determine their exposure to the offences if they haven't already, and reviewing their controls to prevent facilitation of tax evasion across their supply chain. And if they did a risk assessment two years ago, it's time for a review to check that procedures are as robust as they need to be – so that if HMRC does knock on its door, a business can quickly demonstrate that it took reasonable, proportionate steps to prevent the tax evasion that's happened," she said.