Tax evasion by employees

Recent years have seen many celebrities accused of tax evasion, with details on the variety of schemes they have used to enable this.  Tax evasion is not only a privilege of the rich and famous however, and employers must be alert to their legal responsibilities regarding their employee actions in this respect.

The Criminal Finances Act 2017 creates two new corporate criminal offences of failure to prevent the facilitation of all forms of tax evasion, which change the way in which organisations that facilitate, or fail to prevent evasion, can be prosecuted.   In particular, under the Act, as an employer you can be held criminally liable for the actions of your employees if your employees try to evade tax during the course of their duties.

Your business may have a defence under both the domestic and overseas offences if, at the time the offence was committed, either:

• you had in place reasonable "prevention procedures".
• It was not reasonable in the circumstances to expect you to have any prevention procedures in place.

HMRC explains that the new offences do not require relevant bodies to undertake procedures that eradicate all risk, however you need to be able to demonstrate that you have taken reasonable steps, and have put in place adequate systems, controls, policies and procedures.

Although HMRC's guidance suggests the types of processes and procedures that you could put in place, it does not provide any guarantees as to what constitutes proportionate procedures. Ultimately, only the courts are able to determine whether you have reasonable prevention procedures in place.

There is also no definition of what constitutes reasonable beyond the normal definition of the word.  It is a standard to be decided by you as an individual organisation, taking into account several factors including your type of company, size and anything discovered in an appropriate risk assessment.  You can use HMRC’s guidance and any separate industry guidance to be influenced as to what the standard may be for your business.

The HMRC guidance is formulated around six guiding principles:

1. Risk assessment
2. Proportionality of risk-based prevention procedures
3. Top level commitment
4. Due diligence
5. Communication (including training): Suggested content for tax evasion and general fraud training in your business could include the following:
     a. Your policies and procedures, which include provisions of the CFA 2017 and any other sector regulatory rules and principles.
     b. Explanation for employees of when and how they can seek advice and report any concerns or suspicions of tax evasion or wider financial crime, including whistleblowing procedures.
     c. Definition and explanation of the term "tax evasion" and associated fraud.
     d. Explanation of your employee's duty under the law.
6. Monitoring and review.

The guidance is not intended to provide a safe-harbour for employers and compliance with the guidance will not render you immune from prosecution.  Even strict compliance with the guidance will not necessarily amount to having reasonable procedures where you may face particular risks arising from the unique facts of your own business that remain unaddressed.

Different businesses will implement the principles in very different ways; what is reasonable for a small business in a low risk sector may be entirely unreasonable for a large business in a high risk sector.  However, it is good practice for you to alert your employees to the risks you both face and your procedures on avoiding tax evasion through a policy in the Staff Handbook.