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Fewer than a quarter of UK businesses have assessed tax evasion risk

Only 24% of UK businesses have undertaken a risk assessment to assess their exposure to the corporate criminal offences of failing to prevent the facilitation of tax evasion, according to research commissioned by UK tax authority HM Revenue & Customs (HMRC).18 Mar 2019

Over a third of business surveyed were aware of the offences, with one in five surveyed having made changes to their procedures directly as a result. Engagement was highest amongst larger businesses.

Tax expert Penny Simmons of Pinsent Masons, the law firm behind Out-law.com, said: "In many ways the findings are not unexpected, particularly that larger organisations and those operating in higher risk sectors such as finance and insurance have taken greater care in responding to the offences."

The research was undertaken to evaluate the impact of the new offences and involved questioning over 1,000 UK companies. Examining awareness and determining the extent to which the offences have resulted in changes to corporate culture and behaviour were the key objectives.

One in five surveyed had made changes to their procedures directly as a result of the offences. "It is unsurprising that many businesses have focused on tightening up their due diligence procedures to prevent facilitation." Simmons said.

"However, although the research was undertaken over six months ago, the fact that fewer than a quarter of businesses had undertaken any form of risk assessment almost a year after the offences were introduced is concerning. This figure is all the more worrying given that HMRC has confirmed that it began its first criminal investigations under the offences in November and has also made it clear on a number of occasions that a business will have to provide evidence that it has conducted a risk assessment when trying to rely on the defence of having reasonable prevention procedures," she said.

Simmons said it was also concerning that only 8% of businesses have trained staff on tax evasion risks over the past 12 months. "Training is one of the six principles underpinning the defence and it is likely that a business will struggle to mount a defence without being able to demonstrate that its staff understand the difference between tax evasion and avoidance, red flag warnings for tax evasion and what action they should take if they suspect facilitation of tax evasion."  

From 30 September 2017 companies can be held criminally liable if their employees, agents or third parties facilitate tax evasion while acting on their behalf. Companies will not be liable if they can prove that they had reasonable prevention procedures in place or that it was not reasonable in the circumstances to expect there to be procedures in place.

Successful prosecution under the offences could result in unlimited financial penalties, ancillary orders such as confiscation orders or serious crime prevention orders, and serious reputational damage. A successful criminal prosecution may also prevent a company from bidding from public sector contracts.