Criminal Finances Act 2017 and Tax Evasion Prevention
A guide to the corporate offence of failing to prevent the facilitation of tax evasion under the Criminal Finances Act 2017, including what the offence covers and how to put reasonable prevention procedures in place.
The Criminal Finances Act 2017 introduced two new corporate criminal offences for businesses that fail to prevent the facilitation of tax evasion. Unlike most criminal offences, the company does not need to have intended or even known about the tax evasion. If an associated person – an employee, agent or contractor – facilitates tax evasion, the company is automatically guilty unless it can prove it had reasonable prevention procedures in place.
This mirrors the approach taken by the Bribery Act 2010 , where a corporate offence of failing to prevent bribery applies in a similar way.
The two offences
| Offence | Section | Scope | Penalty |
|---|---|---|---|
| UK tax evasion facilitation | Section 45 | Facilitation of UK tax evasion by an associated person | Unlimited fine |
| Foreign tax evasion facilitation | Section 46 | Facilitation of foreign tax evasion by an associated person, where there is a UK connection | Unlimited fine |
How the offence works
The offence is established in three stages:
- Criminal tax evasion by a taxpayer – a person or entity evades tax (this is a criminal offence by the taxpayer under existing law, such as cheating the public revenue or the fraud offence under the Taxes Management Act 1970)
- Criminal facilitation of that evasion by an associated person of the company – the associated person deliberately and dishonestly assists the tax evasion (this is a criminal offence by the individual)
- Failure to prevent – the company failed to prevent its associated person from committing the facilitation offence
The company is guilty of the stage 3 offence unless it can demonstrate that it had reasonable prevention procedures in place, or that it was not reasonable in the circumstances to expect it to have such procedures.
Who is an associated person?
An associated person is anyone who performs services for or on behalf of the company. This includes:
- Employees
- Agents and intermediaries
- Contractors and subcontractors
- Advisers (accountants, tax advisers, financial advisers)
- Joint venture partners acting on the company’s behalf
The definition is deliberately broad. It covers anyone whose actions could facilitate tax evasion in connection with the services they provide for the company.
What counts as facilitation
Facilitation means deliberately and dishonestly assisting another person to evade tax. Examples include:
| Scenario | What happens |
|---|---|
| An employee helps a customer structure a transaction to conceal taxable income | The employee commits facilitation; the company may be liable |
| An accountant at the firm advises a client to hide income offshore | The accountant commits facilitation; the firm may be liable |
| A payroll manager pays a worker cash in hand knowing the worker is evading income tax and NIC | The payroll manager commits facilitation; the employer may be liable |
| An agent of a property company helps a landlord understate rental income | The agent commits facilitation; the property company may be liable |
The facilitation must be deliberate and dishonest. An honest mistake, negligent advice or aggressive but lawful tax planning does not constitute facilitation. The line is between legal tax avoidance (arranging affairs to minimise tax within the law) and criminal tax evasion (dishonestly concealing income or gains from HMRC).
The reasonable prevention procedures defence
The only defence is to prove that the company had reasonable prevention procedures in place to prevent the facilitation of tax evasion, or that it was not reasonable to expect the company to have any such procedures.
HMRC has published guidance setting out six guiding principles for reasonable prevention procedures:
| Principle | What it means |
|---|---|
| Risk assessment | Identify and assess where the risks of facilitation lie within your business |
| Proportionality | Procedures should be proportionate to the risks you face |
| Top-level commitment | Senior management must be committed to preventing facilitation of tax evasion |
| Due diligence | Apply risk-based due diligence to associated persons |
| Communication and training | Ensure those involved in your business understand the risks and your policies |
| Monitoring and review | Review and improve procedures over time |
These principles are intentionally flexible. What is reasonable for a multinational professional services firm is very different from what is reasonable for a local plumbing company with five employees.
Risk assessment
A risk assessment is the foundation of your prevention procedures. Consider:
- Your sector – some industries carry higher risks (financial services, professional services, property, construction, import/export)
- Your associated persons – do any of them provide tax-related services, handle client money or interact with customers’ tax affairs?
- Geographic risks – do you operate in or with jurisdictions where tax evasion is more prevalent?
- Customer risks – do your customers or clients ask you to structure transactions in unusual ways, pay in cash or keep information off the record?
- Transaction risks – are there transaction types in your business that could be exploited?
For many small businesses, the risk assessment will be straightforward. A retail shop with no involvement in customers’ tax affairs has a very different risk profile from an accountancy practice or a recruitment agency supplying workers.
Who needs to worry most
The offence applies to all companies and partnerships, regardless of size. However, the practical risk is highest for businesses whose staff or agents interact with other people’s tax affairs:
- Accountancy firms and bookkeeping practices
- Tax advisory firms
- Payroll bureaux
- Financial advisers and wealth managers
- Recruitment agencies (particularly those using umbrella companies or offshore structures)
- Property management companies
- Construction companies using subcontractors
If your business has no interaction with other people’s tax obligations, the risk is lower, but you should still document a proportionate risk assessment.
Practical compliance steps
For higher-risk businesses
- Carry out a documented risk assessment covering each area of your business where facilitation could occur
- Write a prevention policy that sets out your zero-tolerance position on facilitating tax evasion
- Train relevant staff on what constitutes tax evasion, what facilitation looks like and how to report concerns
- Include contractual clauses in agreements with agents, subcontractors and advisers requiring them not to facilitate tax evasion
- Conduct due diligence on associated persons, particularly those who provide tax-related services or handle client money
- Establish a reporting mechanism so staff can raise concerns confidentially
- Monitor and review your procedures annually
For lower-risk businesses
Even if the risk of facilitation is low, you should:
- Document a brief risk assessment explaining why the risk is low
- Include a statement in your staff handbook or policies about the offence
- Ensure your payroll is compliant – paying workers properly through PAYE and not knowingly facilitating off-payroll tax evasion
- Review subcontractor arrangements to ensure you are not facilitating non-compliance with the Construction Industry Scheme or other obligations
Interaction with other obligations
The Criminal Finances Act sits alongside other compliance regimes that share similar principles:
| Regime | Similarity |
|---|---|
| Bribery Act 2010 | Same “failure to prevent” model with an “adequate procedures” defence |
| Money Laundering Regulations 2017 | Risk-based approach, customer due diligence, training and reporting |
| HMRC Senior Accounting Officer regime | Senior officer of qualifying companies must certify that tax accounting arrangements are adequate |
Businesses already compliant with anti-money laundering or Bribery Act requirements can often extend their existing procedures to cover the tax evasion facilitation offence without building an entirely new framework.
Enforcement
HMRC is the primary enforcement body for the UK offence. The Serious Fraud Office and Crown Prosecution Service may also prosecute in serious cases.
Enforcement to date has focused on building awareness and encouraging voluntary compliance, but HMRC has confirmed that prosecutions will follow where businesses have made no effort to prevent facilitation. The unlimited fine on conviction, combined with reputational damage and potential regulatory consequences, makes compliance a priority even for businesses that consider their risk to be low.
Common misconceptions
- “This only applies to big companies” – it applies to all companies and partnerships, regardless of size
- “We do not deal with tax, so it does not apply to us” – if any associated person could facilitate tax evasion in connection with services they provide for you, it applies
- “We trust our employees” – trust is not a defence; documented procedures are
- “Tax avoidance is the same as tax evasion” – it is not; the offence only covers criminal evasion, not lawful planning
- “We need expensive lawyers to comply” – proportionate procedures for a small, low-risk business can be simple and inexpensive