Criminal Finances Act - a Recruiter’s Guide
The Criminal Finances Act came into effect on 30th September 2017 and should be firmly on the radar of all recruitment agencies.
By far, the most significant aspect of the legislation for recruiters is a new offence of failure to prevent facilitation of tax evasion.
This means that criminal charges can be brought against any corporate organisation which fails to prevent its employees and other associated persons from facilitating tax evasion.
An example would be where a recruitment agency employee recommends a payroll provider to a worker with the reasonable expectation that correct levels of tax are not being paid to HMRC. (This could include an Employee Loan Scheme).
Importantly, liability still applies even if management is not involved in or aware of the act of facilitation. It used to be that employment businesses could rely on a defence that they had no knowledge of tax evasion further down their supply chain - this legislation turns that on its head.
New corporate offence - “failure to prevent the facilitation of tax evasion”.
Let’s be clear - tax evasion is already an offence but now criminal liability can be attributed to the company where it originated, potentially carrying a prison sentence and an unlimited fine.
The legislation states that: “A relevant body is guilty of an offence if a person commits a UK tax evasion facilitation offence when acting in the capacity of a person associated with it”.
For a company or partnership to be liable under the Criminal Finances Act, 3 stages must be established:
- Criminal tax evasion by a taxpayer under existing law
- Criminal facilitation of the offence by a representative of the company
- A corporate body’s failure to prevent a representative from facilitating criminal tax evasion.
Defence from criminal liability
If stage one and two have been committed, then the onus is on the company to show that they have put reasonable measures in place to prevent facilitation or that in the circumstances it would have been unreasonable or unrealistic to expect such measures to be implemented.
Recommendations for recruiters
The Criminal Finances Act effectively makes recruitment agency directors responsible for ensuring that no-one associated with their business facilitates tax evasion. The larger and more complex the business, the greater the risk. Don’t forget - management being removed from or unaware of breaches is not considered a defence.
However there are certain measures recruitment businesses can take to mitigate these risks:
- Risk assessment
HMRC suggests that companies undertake risk assessments of their internal processes and procedures to identify any practices that could potentially be used to facilitate tax evasion.
These may include instances where staff are less than open about particular client or supplier relationships.
- Procedures review
Risk analysis will show any areas of your internal procedures and processes which need to be updated or strengthened. These may include:
- Demonstrating high-level commitment to preventing the facilitation of tax evasion
- Inserting and enforcing clauses in contracts with employees and contractors precluding the facilitation of tax evasion and a requirement to report concerns
- Providing staff training on identifying and preventing financial crime
- Providing a safe whistle-blowing procedure
- Monitoring, enforcing and reviewing prevention procedures on an ongoing basis.
- Communication and training
As we touched on above, it is essential that all employees and other representatives of the business are aware of the company’s stance on preventing the facilitation of tax evasion and the seriousness of a breach. Training can either be carried out in-house or using a third party specialist.
- Supply chain audit
For recruitment businesses, this legislation makes it more important than ever to know that your preferred umbrella and contractor accounting suppliers are above board. Using only fully-accredited FCSA member companies is an infallible way to ensure this. A list of fully accredited members can be found here.
Other measures in the Criminal Finances Act
Aside from the new offence of failing to prevent the facilitation of tax evasion, the Criminal Finances Act makes a number of additional provisions to tackle financial crime, including further powers for authorities to investigate money laundering or terrorist financing, and new orders requiring anyone with information of money-laundering to disclose it.
The Act also allows for Unexplained Wealth orders to be served on anyone suspected of a serious crime to explain the source of their wealth.
Help with compliance
Risk of liability under the Criminal Finances Act is yet another burden for recruitment agencies, but Liquid Friday can provide support to all TEAM members with bespoke services including risk assessment, training and supply chain health-checks.
To talk to us about the compliance needs of your business, call Sam Pascoe on 07715667073 or visit liquidfriday.co.uk/criminal-finances-act/
Tel: 0800 316 6030