The Criminal Finances Act – Are you ready?

Brief introduction
From the 30th of September 2017, the Criminal Finances Act 2017 will make companies criminally liable if they fail to prevent tax evasion by a member of staff, or a contractor, even if the senior management of their business was not wholly involved nor aware of what was going on.  These new set of rules are targeting the deliberate and dishonest behaviour and will hold corporate bodies liable where it can show facilitation of tax evasion.

For you, the Recruitment Agency, this also extends to your consultants that recommend to such schemes that facilitate tax evasion.

How would you be liable?
For a company to be liable, 3 stages must be established;

1.  Criminal tax evasion by a individual or firm under existing law
For example, a contractor uses a scheme, where part of their income is treated as a disguised loan.  HMRC have published spotlights on it's website which includes non-compliant schemes such as loans, annuities, job boards etc.  You can find more information on this here:

 2.  Criminal facilitation of the offence by a representative of the firm
For example, the recruitment consultant who recommends the "take home pay of 85%" (or similar) scheme to the contractor.  A referral fee paid to the consultant would provide a clear motive for dishonesty.

3.  Corporate failure to prevent it's representative from committing the criminal act outlined at stage 2
For example, the agency that employs the recruitment consultant who fails to prevent the tax evasion.

What is the defence from criminal liability?
Recruitment agencies will be expected to prove that they have rigorous procedures in place to prevent the facilitation of tax evasion, or that it was not reasonable under the circumstances, to expect it to put such prevention procedures in place.  It will be necessary to carry out checks on your supply chain to monitor referrals made to third parties by your consultants.

What are the Penalties?
  •      Unlimited financial penalties
  •      Ancillary orders such as confiscation order or serious crime preventions orders.
Obtaining a criminal conviction could have serious consequences not limited to just reputational and financial.

What can you do now?
  • Risk assessment -- which suppliers are your consultants referring to?  Are these exposing you to risk of tax evasion?
  • Review your PSL and your supply chain - ask whether they would be happy to sign a disclaimer, and / or provide information that shows that they are not facilitators of tax evasion.
  • Recruiters must show that they have reasonable preventative measures in place which stop their contractors joining these schemes
  • Train your consultants on compliant options - we would be happy to provide assistance with this
  • Update your internal policy and consultant hand book

 Also look out for...
Undisclosed payments -  Payment made directly to consultants for referrals may show motive as well as awareness of the scheme.
Acknowledgement that the contractor is receiving a higher financial net benefit - those schemes that promise a "Too good to be true" take home pay, probably are.

Does this measure cover tax avoidance?
• The new laws target deliberate and dishonest behaviour at the taxpayer level.
• They do not create any new offences at the individual level - if activity would currently be considered tax evasion under the existing law then it will continue to be so.
• Likewise, if activity would not currently be considered tax evasion, then the new law does not make it tax evasion.

Remember that this becomes enforceable from the 30th of September 2017, if you are at risk, you need to act now.

 ESCG welcomes this piece of legislation and hopes that it stamps out the non compliant businesses that exist in the current market.  We continually ensure that the solutions we promote are complying, and are happy to discuss any concerns that you may already have so please feel free to give us a call:  0207 808 6405

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