We featured the Criminal Finances Act 2017 in last month’s e-newsletter and return to it this month in relation to the new offence of facilitating tax evasion.
In order to counter the risks of liability for this new offence law firms and other professional advisers must have adopted a suitable policy which they can demonstrate to have been based on a risk assessment process.
As a corporate offence the facilitation crime can only be committed by the firm and not its individual partners, employees or agents. The three ingredients of the offence are:
- for tax evasion to have occurred, regardless of whether there has been a conviction;
- this evasion must have been facilitated in some way by an “associated person”; and
- the firm had failed to put in place measures to prevent this through the adoption of “reasonable procedures”.
Since “associated persons” include external agents instructed by the firm as well as partners, consultants and employees some element of due diligence is also required in relation to checking their suitability.
No doubt those who manage firms will want to avoid providing advice which is of its nature illegal in any event, not least as Principle 1 of the SRA Handbook imposes an underlying duty to uphold the rule of law and the proper administration of justice. Private client lawyers may be concerned about tax avoidance schemes, however, which may later be investigated by HMRC and then be declared to be illegal. There is some comfort in relation to these risks in the Revenue guidance note which stresses the need for the associated person to facilitate the tax evasion “deliberately and dishonestly”, which suggests that bona fide advice should be no risk even if it does push the boundaries of what might be regarded as legitimate tax avoidance when provided.
Sadly, the risks of illegal or unpermitted advice by those within the firm also need to be considered. A recent report in the Gazette highlighted a conveyancer in a firm who, unbeknownst to the partners, had under-declared property values on 43 stamp duty land tax forms which he then submitted to HM Revenue & Customs, transferring about £333,000 to a personal bank account and to third parties. This resulted in a regulatory settlement being agreed between the partners of the firm and the SRA on the basis of a failure to establish and maintain proper accounting systems. Similar circumstances now might result in a prosecution under this offence if the “reasonable procedures” required by the act were found not to be in place.
Subscribers to Infolegal can access a more detailed factsheet on this topic which includes a draft risk assessment policy and model policy.
The offence took effect at the end of last month and HMRC recognised that it would take some time to develop the necessary safeguards against liability, but they have also said that there is a need for “rapid implementation, focusing on the major risks and priorities, with a clear time frame and implementation plan”. We hope that the factsheet will enable our subscribers to do just this.