November 6th 2017

Criminal Finances Act – not something just for your professional advisors

Posted by:

Lisa Wilson, Head of Tax

Tax

lisa-wilson

A significant piece of tax evasion legislation – The Criminal Finances Act, came into effect 30 September 2017 but it appears that a number of tax payers are still unaware of the ramifications the Act may have on their tax affairs. In fact reports suggest that up to 76% of business owners are still unaware of how this legislation could affect their relationship with their professional advisers.

What is the Criminal Finances Act?

Essentially, it gives the tax authorities extended powers regarding tax evasion, putting a specific focus on “corporate facilitation”. Whilst most businesses understand that tax evasion is a crime, the new rules have been implemented to stop businesses asking their advisers to work in the grey, bringing in specific punishments for both the business and their professional advisors.

The act goes further than previous legislation by extending the punishment for the facilitation of Tax Evasion not only to those who committed the offence, but to any parties who have “passively allowed” an offence to happen.

The measures are in some way a response to the scandal of the infamous Panama Papers, and the way in which advisors were found to have been “assisting”, or “passively allowing” tax to be hidden from the authorities. Whilst many UK businesses were involved in the Panama Papers, there was no UK legislation that allowed for UK prosecutions, particularly where a UK parent company may have been deemed responsible.

The act sets out what an offence can be, including: “non-disclosure”, “concealing evidence”, and even “turning a blind eye”. This isn’t just specific to UK tax as it permits the UK authorities to pursue companies and individuals where tax evasion may have taken place in other jurisdictions.

The act sets a strong precedent, shifting governance not just from the individual or company, but onto their advisors.

Whilst the act may be perceived as targeting big business tax evasion, in particular off-shore bank accounts, the act is wide-reaching, and includes smaller business issues, such as backdating documents i.e board meeting minutes/ dividend vouchers, opaque billing arrangements where personal expenditure may be passed through the company’s accounts, to unsubstantiated tax claims.

Whilst to a certain extent these have always been disallowed by HMRC, now as well as the individuals and companies they are targeting professional advisors with unlimited fines and criminal prosecution.

If you should have any queries in respect of the Criminal Finances Act and how it may impact on your business please do not hesitate to contact us.


This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.